Which is a major criticism of a monopoly as a source of allocative inefficiency?
A) A monopolist fails to expand output to the level where the consumers' valuation of an additional unit is just equal to its opportunity cost.
B) A monopolist has no incentive to produce efficiently, because even the inefficient monopolist can be assured of economic profits.
C) A monopolist will always earn profits, and that means that prices are too high.
D) A monopolist has an unfair advantage because it can purchase labor at a lower price than competitive firms can.

Question

Quizplus · Accepted Answer

Allocative efficiency occurs when resources are allocated to their most valued uses. In a monopoly, the monopolist restricts output to increase price, which results in a lower quantity demanded and a deadweight loss. This means that the monopolist fails to expand output to the level where the consumers' valuation of an additional unit is just equal to its opportunity cost.

Which Is a Major Criticism of a Monopoly as a Source