Market power leads to markets that do NOT have socially optimal results. The _____ is higher and the _____ is lower than the socially optimal result in perfect competition.
A)total cost; price
B)output; demand
C)price; output
D)demand; total cost

Question

Quizplus · Accepted Answer

In a market with market power, the firm has the ability to charge a higher price than would be charged in a competitive market, resulting in a higher price and a lower output level. In perfect competition, the price would be equal to marginal cost and the output level would be socially optimal. Therefore, the socially optimal output level is not achieved in a market with market power. The other choices are not accurate in explaining the effects of market power on market outcomes.

Market Power Leads to Markets That Do NOT Have Socially