Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
A monopoly setting prices above marginal cost, resulting in deadweight loss
B
A competitive market where supply equals demand
C
A government subsidy leading to increased production and consumer surplus
D
A firm maximizing profit by producing at the lowest average cost
Understanding the Answer
Let's break down why this is correct
Answer
A sub-optimal outcome in a market happens when resources are not used in the best possible way, leading to waste or inefficiency. For example, imagine a farmer who grows too many apples but not enough oranges, even though there is a high demand for oranges. This situation means that while some apples might go unsold, people are still looking for oranges, causing a mismatch in supply and demand. As a result, the farmer is not maximizing their profits and consumers are not getting what they want, showing that the market is not operating efficiently. This scenario highlights how sub-optimal outcomes can lead to lost opportunities for both producers and consumers.
Detailed Explanation
In a monopoly, one company controls the market. Other options are incorrect because Some might think a competitive market is always perfect; It's easy to think that more production is always good.
Key Concepts
Optimal and Sub-optimal Outcomes
Market Efficiency
Deadweight Loss
Topic
Optimal and Sub-optimal Outcomes
Difficulty
medium level question
Cognitive Level
understand
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