If both a monopoly and a competitive market with the same marginal cost would produce a quantity that is greater than the social optimum in a market because of externalities,then
A) welfare is greater under monopoly.
B) welfare is greater under competition.
C) welfare is the same for both market structures.
D) the social optimum must be zero.

Question

Quizplus · Accepted Answer

In the presence of externalities that lead to production quantities greater than the social optimum, a monopoly, by producing less than a competitive market due to its profit-maximizing behavior (higher prices and lower quantities), inadvertently moves closer to the social optimum. This results in a potentially higher welfare under monopoly conditions compared to a competitive market, where the quantity produced would be higher and further from the social optimum.

If Both a Monopoly and a Competitive Market with the Same