In the context of monopolies, how does allocative efficiency relate to welfare loss, and what does this imply about economic efficiency in a monopolistic market?

Allocative efficiency happens when resources are distributed in a way that maximizes the overall satisfaction of society. In a monopoly, a single company controls the market and can set prices higher than what would occur in a competitive market. This leads to welfare loss because some consumers who are willing to pay for the product at a lower price cannot buy it, resulting in fewer transactions and less overall happiness. For example, if a monopolistic company sells a popular video game for $60 instead of $40, some players who would have bought it at the lower price miss out, leading to lost enjoyment. Thus, monopolies create inefficiencies because they restrict access and reduce total welfare compared to a competitive market, where prices are lower and more people can benefit.