Monopolists are said to be allocatively inefficient because
A) they produce where MR MC.
B) at the profit-maximizing output, price is greater than AVC.
C) they produce only the type of product they desire and do not consider the consumer.
D) at the profit-maximizing output, the marginal benefit of the product to society exceeds its marginal cost.

Question

Monopolists are said to be allocatively inefficient because
A) they produce where MR > MC.
B) at the profit-maximizing output, price is greater than AVC.
C) they produce only the type of product they desire and do not consider the consumer.
D) at the profit-maximizing output, the marginal benefit of the product to society exceeds its marginal cost.

Quizplus · Accepted Answer

Monopolists are allocatively inefficient because they produce at a quantity where the marginal benefit of the product to society exceeds its marginal cost, which means that there is an underproduction of the good from society's perspective. This is because the monopolist restricts output to charge a higher price and earn higher profits, resulting in a deadweight loss to society. Choices A and B are not correct as producing where marginal revenue equals marginal cost and producing at a price greater than average variable cost are profit maximization conditions, not allocative efficiency conditions. Choice C is not correct as monopolists do consider consumer demand but are able to restrict output and charge higher prices due to their market power.

Monopolists Are Said to Be Allocatively Inefficient Because