Monopoly is allocatively inefficient because
A)the price exceeds the marginal cost of the last unit produced.
B)the opportunity cost exceeds the marginal cost of the last unit produced.
C)the marginal cost exceeds the average cost for the last unit produced.
D)lower costs could be achieved.
E)the firm has no incentive to maximize profits.

Question

Quizplus · Accepted Answer

Allocative efficiency occurs when the price of a good is equal to its marginal cost. In a monopoly, the price exceeds the marginal cost which leads to a deadweight loss and allocative inefficiency. This is because the monopolist restricts output in order to maintain a higher price and profit, even though producing more units of the good would cost less than the market price.

Monopoly Is Allocatively Inefficient Because