Question

Because a monpoly will produce less of a good than a competitive market will, welfare is always greater under monopoly than under competition in the presence of a negative externality

True.
False.

Answer 1

False. Welfare is not always greater under monopoly than under competition in the presence of a negative externality.

Step-by-step explanation:

False. Welfare is not always greater under monopoly than under competition in the presence of a negative externality. In fact, monopoly power can lead to welfare losses in the presence of negative externalities.

When a negative externality exists, such as pollution, the social costs of production exceed the private costs for the monopolist.

This means that the monopolist is not taking into account the full cost of production, including the negative effects on society. As a result, the monopolist may produce more than the socially optimal level of output, leading to welfare losses.

In a competitive market, on the other hand, the presence of multiple firms can lead to a lower level of output and pollution, as each firm takes into account the negative effects on society. Therefore, in the presence of a negative externality, welfare is generally greater under competition than under monopoly.