If the market for diamonds is a monopoly, then
A) the prices of diamonds are too low.
B) there is an inefficient amount of resources allocated to the diamond market.
C) the diamond market is efficient.
D) diamond production is at the amount where the marginal social benefit equals the marginal social cost.

Question

Quizplus · Accepted Answer

In a monopoly, the market power held by the monopolist often leads to prices higher than in competitive markets and a lower quantity of goods produced. This results in an inefficient allocation of resources, as the quantity produced is not at the level where marginal social benefit equals marginal social cost, leading to a deadweight loss.

If the Market for Diamonds Is a Monopoly, Then