When a monopolist chooses the output that maximizes profits, we know that MR = MC and also that P MR. This is inefficient because
A)the monopolist is not minimizing costs.
B)the monopolist is the only producer in the market.
C)the monopolist fails to make transactions where the marginal benefit is greater than the marginal cost.
D)there are entry barriers.

Question

When a monopolist chooses the output that maximizes profits, we know that MR = MC and also that P > MR. This is inefficient because
A)​the monopolist is not minimizing costs.
B)​the monopolist is the only producer in the market.
C)​the monopolist fails to make transactions where the marginal benefit is greater than the marginal cost.
D)​there are entry barriers.

Quizplus · Accepted Answer

When a monopolist chooses the output level where MR = MC, they are only producing up to the point where the marginal benefit equals the marginal cost for the last unit produced. However, since the monopolist charges a price higher than the marginal revenue, there are potential buyers who are willing to pay a higher price for the good but cannot purchase it. This means that there are mutually beneficial transactions that are not taking place, resulting in an inefficient allocation of resources. Therefore, the monopolist is failing to make transactions where the marginal benefit is greater than the marginal cost.

When a Monopolist Chooses the Output That Maximizes Profits, We