Why does monopoly result in a welfare loss?
A) because the monopolist restricts output below the socially efficient level
B) because marginal revenue does not equal marginal cost
C) because total cost is not minimized
D) because average variable cost is not minimized

Question

Quizplus · Accepted Answer

Monopoly results in a welfare loss because the monopolist restricts output below the socially efficient level. A monopolist has the power to set the price and quantity of its product, and it will usually choose a price that is higher than the marginal cost of production. This results in a reduction in output and a higher price, which leads to a deadweight loss or welfare loss for society. Society would be better off if the product was produced at the socially efficient level where marginal cost equals marginal benefit.

Why Does Monopoly Result in a Welfare Loss