Market failure occurs:
A) when the output level of the firm is efficient.
B) when the output level of the firm is inefficient.
C) when firms do not maximize profits.
D) only in the presence of a monopoly.
E) only in the presence of economies of scale.

Question

Quizplus · Accepted Answer

Market failure occurs when the output level of the firm is inefficient. This happens when the market fails to allocate resources efficiently due to externalities, public goods, imperfect competition, and incomplete information. A monopoly may lead to market failure, but it is not the only cause. Economies of scale do not necessarily lead to market failure either.

Market Failure Occurs