Economic inefficiency of a monopoly occurs because

Question

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A monopoly will choose the quantity at which the marginal revenue (MR) equals marginal cost (MC) to maximize profit. However, the price charged by the monopolist will be higher than the marginal cost, leading to a situation where P > MC. This results in economic inefficiency because the monopolist is not producing where the marginal cost equals the market price, which would create the maximum possible economic surplus. Instead, the monopolist sets a higher price and reduces output, leading to a deadweight loss and a lower overall level of economic welfare.

Economic Inefficiency of a Monopoly Occurs Because