Which of the following is a major criticism of a monopoly as a cause of allocative inefficiency?
A)A monopolist fails to expand output to the level where the consumers' evaluation of an additional unit is just equal to its opportunity cost
B)A monopolist has no incentive to produce efficiently, because even if it pays no attention to the costs of production, it will be guaranteed an economic profit
C)A monopolist will always make profits therefore providing an incentive to keep prices at the level that maximizes consumer surplus
D)A monopolist has an advantage because it can purchase the resources in a competitive market
E)Consumer surplus would no longer be equal to producer surplus

Question

Quizplus · Accepted Answer

A monopolist has the power to restrict output and raise prices above marginal cost, leading to an output below the socially optimal level where the consumers' evaluation of an additional unit is just equal to its opportunity cost. This results in a deadweight loss and allocative inefficiency.

Which of the Following Is a Major Criticism of a Monopoly