Monopolists are said to be allocatively inefficient because:

Question

Quizplus · Accepted Answer

Allocative efficiency occurs when the marginal benefit to society from producing an additional unit of output is equal to the marginal cost to society. Monopolists, however, produce at a point where marginal revenue (MR) is equal to marginal cost (MC), which is where they maximize profits. This means that the marginal benefit to society from producing an additional unit of output is greater than the marginal cost to society. Therefore, monopolists are allocatively inefficient.

Monopolists Are Said to Be Allocatively Inefficient Because