Value maximization leads to predictable resource misallocation when the firm:
A)operates in a competitive market.
B)buys inputs from a monopsonist.
C)has monopoly power in the market.
D)sets price below long-run marginal cost.

Question

Quizplus · Accepted Answer

When a firm has monopoly power in the market, its goal of maximizing profits may result in the misallocation of resources, as it can charge higher prices and reduce output to maximize profits without facing competition. This can lead to inefficiencies and harm consumer welfare. Therefore, value maximization is not the best strategy for a monopolist, and alternative policies such as regulating prices or promoting competition may be needed to achieve allocative efficiency.

Value Maximization Leads to Predictable Resource Misallocation When the Firm