Question

Which statement is correct?A.Monopoly firms tend to be more internally efficient than competitive firms because they have a single goal of profit maximizationB.Monopoly firms are sheltered from competitive forces and such an environment makes them subject to X-inefficiencyC.Monopoly firms are in industries with low barriers to entry that tend to lower the cost of producing productsD.Competitive firms tend to be more efficient than monopolist firms because they maximize per unit profits, not total profits

Answer 1

Answer: B.Monopoly firms are sheltered from competitive forces and such an environment makes them subject to X-inefficiency

Step-by-step explanation:

By definition, a Monopoly is shielded from competitive forces as they are either the only firm in an industry or they have a super majority in it.

For this reason they will probably become prone to X-Inefficiency.

X-Inefficiency is a phenomenon that usually attacks Monopolies and it is characterised by average costs of production becoming higher than necessary. It results from when there is no competition so there is no incentive to keep costs low or maintain efficiency.

The is why a lot of government firms running a Monopoly in a service sector for instance, have high Overheads.