Monopolists are said to be allocatively inefficient because
A)they produce where MR MC.
B)at the profit-maximizing output, price is greater than AVC.
C)they produce only the type of product they desire and do not consider the consumer.
D)at the profit-maximizing output, the marginal benefit of the product to society exceeds its marginal cost.

Question

Monopolists are said to be allocatively inefficient because
A)they produce where MR > MC.
B)at the profit-maximizing output, price is greater than AVC.
C)they produce only the type of product they desire and do not consider the consumer.
D)at the profit-maximizing output, the marginal benefit of the product to society exceeds its marginal cost.

Quizplus · Accepted Answer

Monopolists are considered allocatively inefficient because they set a price higher than the marginal cost (MC) at their profit-maximizing output level. This means that the price consumers pay is more than the cost of producing one more unit of the product, leading to a situation where the marginal benefit to society (reflected in their willingness to pay) is greater than the marginal cost of producing the product. This discrepancy indicates that resources are not being allocated in a way that maximizes total welfare in the economy.

Monopolists Are Said to Be Allocatively Inefficient Because