Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
The monopoly maximizes profits by producing at a quantity where marginal cost equals marginal revenue.
B
The resources are allocated in such a way that every consumer's willingness to pay matches the cost of production.
C
The firm sets prices lower than the competitive market to gain market share.
D
The monopoly produces the maximum level of output for the minimum cost.
Understanding the Answer
Let's break down why this is correct
Answer
Allocative efficiency in monopolies occurs when resources are distributed in a way that maximizes the overall benefit to society. In a perfectly competitive market, this means producing the quantity of goods where the price equals the marginal cost, ensuring that the value consumers place on a product matches the cost of producing it. However, monopolies often set prices higher than the marginal cost, leading to less production and fewer choices for consumers. For example, if a single company sells a unique type of software for $100 instead of $50, fewer people may buy it, resulting in lost opportunities for both consumers and the company. Therefore, allocative efficiency is not achieved in monopolies because they restrict output to maximize profits rather than meeting consumer demand.
Detailed Explanation
Allocative efficiency means that resources are used so that what people want matches what it costs to make. Other options are incorrect because This option suggests that a monopoly only cares about profits; This choice implies that lowering prices is the goal.
Key Concepts
monopolies
Topic
Allocative Efficiency in Monopolies
Difficulty
easy level question
Cognitive Level
understand
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