Which of the following statements is correct?
A) Monopoly firms tend to be more internally efficient than competitive firms because they have a single goal of profit maximization.
B) Monopoly firms are sheltered from competitive forces, and such an environment makes them subject to X-inefficiency.
C) Monopoly firms are in industries with low barriers to entry that tend to lower the cost of producing products.
D) Competitive firms tend to be more efficient than monopolist firms because they maximize per unit profits, not total profits.

Question

Quizplus · Accepted Answer

Monopoly firms are sheltered from competitive forces, which can make them less efficient because there is no incentive to minimize costs or improve quality. This leads to X-inefficiency, where resources are not being used in the most efficient way possible. The other statements are incorrect because monopoly firms do not necessarily have a single goal of profit maximization (they may also pursue other objectives such as market share or prestige), are typically in industries with high barriers to entry, and do not necessarily have lower costs of production. Competitive firms do tend to maximize per unit profits, but this does not necessarily make them more efficient than monopolists.

Which of the Following Statements Is Correct