Question

What do economists say is problematic with the allocative efficiency of a monopoly? Consumers will suffer from a monopoly because it will sell a higher quantity in the market at a lower price compared to a firm in a perfectly competitive market. Monopolies are not inefficient. They produce the optimal quantity of some output the quantity where the marginal benefit to society of one more unit just equals the marginal cost. Companies can offer a wide range of services at low prices and they have to fight to keep monopoly power in a competitive market with low barriers to entry. Consumers will suffer from a monopoly because it will sell a lower quantity in the market at a higher price compared to a firm in a perfectly competitive market.

Answer 1

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1.

Consumers will suffer from a monopoly because it will sell a lower quantity in the market at a higher price compared to a perfectly competitive market

Reason: Monopoly firms operate for profit maximization and thus set higher than competition prices and sell less than perfectly competitive outcome, leading to efficiencies loss in the form of deadweight loss.