The profit-maximizing output of a pure monopoly is not socially optimal, because in equilibrium
A) price equals minimum average total cost.
B) marginal revenue equals marginal cost.
C) marginal cost exceeds price.
D) price exceeds marginal cost.

Question

Quizplus · Accepted Answer

The profit-maximizing output of a monopoly occurs where the marginal revenue (MR) equals marginal cost (MC). However, this level of output is not socially optimal because the price charged by the monopoly (determined by the demand curve) is greater than the marginal cost of production. This means that the monopoly is not producing enough output to fully satisfy consumer demand, resulting in deadweight loss and reduced economic efficiency. Therefore, the socially optimal level of output would occur where the price equals the marginal cost, which is typically a higher level of output than what the monopoly would choose on its own.

The Profit-Maximizing Output of a Pure Monopoly Is Not Socially