Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
When a monopoly maximizes its profits at the expense of consumer welfare
B
When resources are distributed in such a way that maximizes consumer and producer surplus
C
When a monopoly charges a price equal to its marginal cost
D
When a monopoly produces at a quantity where marginal cost equals marginal revenue
Understanding the Answer
Let's break down why this is correct
Answer
Allocative efficiency occurs when resources are distributed in a way that maximizes the overall benefit to society. In the context of monopolies, this means that the price of a good or service reflects its true cost of production, ensuring that consumers can access it at a fair price. However, monopolies often set prices higher than what would occur in a competitive market, leading to fewer sales and less overall satisfaction for consumers. For example, if a single company controls the market for a certain medication, they might charge a high price, making it hard for many people to afford it, which results in allocative inefficiency. In this case, the resources used to produce the medication are not being used in the best way to meet society's needs.
Detailed Explanation
Allocative efficiency happens when resources are used to make people as happy as possible. Other options are incorrect because Some might think that maximizing profits means helping consumers; This option suggests that a monopoly charges a price equal to its marginal cost.
Key Concepts
allocative efficiency
Topic
Allocative Efficiency in Monopolies
Difficulty
easy level question
Cognitive Level
understand
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