Question

The economic inefficiency of a monopolist can be measured by the A. area above marginal cost but beneath demand from the monopoly output to the socially-efficient output. B. deadweight loss. C. value of the unrealized trades that could be made if the monopolist produced the socially-efficient output. D. All of the above are correct.

Answer 1

The correct answer is option D.

Step-by-step explanation:

A monopoly firm is neither productively nor allocative efficient. The reason behind this is that it does not utilize the resources efficiently and produces below the socially optimal level of output.

Unlike perfect competition, which produces at the point where price equals marginal cost, a monopolist produces at the point where the price is greater than marginal cost.

This inefficiency is visible through the decrease in consumer surplus and deadweight loss. The difference between socially optimal level of output and monopoly output also represents inefficiency. The value of the goods and services that could have been made if monopolist chose to produce at a socially optimal level also shows inefficiency.