In a monopoly, allocative efficiency occurs when the price charged by the monopolist equals the marginal cost of production. Which of the following statements is true regarding this scenario?

In a monopoly, allocative efficiency happens when the price that the monopolist sets for their product is equal to the marginal cost of producing one more unit. This means that the resources used to produce the good are being used in the best possible way, as the price reflects the value that consumers place on the last unit produced. For example, if a monopolist produces a toy and charges $10 for it, but it only costs $5 to make one more toy, they are not at allocative efficiency, since the price is higher than the cost. Allocative efficiency would only be achieved if the price dropped to $5, meaning consumers are willing to pay exactly what it costs to produce. This balance ensures that resources are not wasted and that the needs of consumers are met effectively.