A single price profit maximizing monopolist is inefficient because
A)it produces too much output.
B)it perfectly price discriminates when it can.
C)the sum of consumer and producer surplus is less than it could be.
D)it produces where price equals marginal cost rather than where marginal cost equals marginal revenue.

Question

Quizplus · Accepted Answer

A monopolist maximizes profits by producing where marginal revenue equals marginal cost, which is not necessarily where the price equals marginal cost. As a result, the monopolist will charge a higher price than the marginal cost, leading to a reduction in consumer surplus. This reduction in consumer surplus exceeds the increase in producer surplus, resulting in an overall reduction in total surplus (the sum of consumer and producer surplus). Therefore, a single-price profit maximizing monopolist is inefficient because it produces less output and causes a deadweight loss, which leads to a suboptimal allocation of resources and a loss of social welfare. As for option B, a monopolist cannot perfectly price discriminate in all cases because it may not be able to identify or separate different groups of consumers with different willingness to pay.

A Single Price Profit Maximizing Monopolist Is Inefficient Because