Allocative inefficiency happens in a monopoly because at the profit-maximizing output level,
A)P ATC.
B)P MR.
C)P MC.
D)P AVC.

Question

Allocative inefficiency happens in a monopoly because at the profit-maximizing output level,
A)P > ATC.
B)P > MR.
C)P > MC.
D)P > AVC.

Quizplus · Accepted Answer

Allocative inefficiency in a monopoly occurs because the price (P) charged by the monopolist is greater than the marginal cost (MC) of production. This means that the monopoly is not producing at a point where consumer demand (price) equals the cost of producing an additional unit, leading to a misallocation of resources.

Allocative Inefficiency Happens in a Monopoly Because at the Profit-Maximizing