An important economic problem associated with pure monopoly is that, at the profit-maximizing outputs, resources are
A)overallocated because price exceeds marginal cost.
B)overallocated because marginal cost exceeds price.
C)underallocated because price exceeds marginal cost.
D)underallocated because marginal cost exceeds price.

Question

Quizplus · Accepted Answer

In a pure monopoly, the monopolist sets a price higher than the marginal cost, which leads to underallocation of resources. This is because the monopolist's profit-maximizing output is less than the socially optimal output, where price equals marginal cost.

An Important Economic Problem Associated with Pure Monopoly Is That