Which is a major criticism of a monopoly as a source of allocative inefficiency?

Question

Quizplus · Accepted Answer

Allocative efficiency occurs when resources are allocated based on consumer preferences and the marginal cost of production. However, a monopolist may not produce at the level where the consumers' valuation of an additional unit is just equal to the monopolist's opportunity cost, leading to a deadweight loss and inefficiency. This is a major criticism of monopolies as a source of allocative inefficiency.

B is incorrect because a monopolist may still have to compete with other potential entrants in the market or face the risk of regulation, which could lead to the firm pursuing efficiency. C is incorrect because monopolies can make profits but it does not necessarily mean that prices are too high. D is incorrect because a monopoly may have the power to set prices, but this does not give it an unfair advantage in purchasing labor.

Which Is a Major Criticism of a Monopoly as a Source