Allocative efficiency occurs in a monopoly when:
A)price is less than marginal cost.
B)price is greater than marginal cost.
C)price is equal to marginal cost.
D)price is equal to average cost.
E)marginal revenue is equal to marginal cost.

Question

Quizplus · Accepted Answer

Allocative efficiency occurs when price is equal to marginal cost, which means that resources are allocated in the most efficient way and social welfare is maximized. In a monopoly, the optimal price and output level occurs where marginal cost intersects with the demand curve, which requires setting the price equal to marginal cost. Therefore, the correct choice is C.

Allocative Efficiency Occurs in a Monopoly When