Monopolies misallocate resources because
A) price does not equal marginal cost.
B) price does not equal average variable cost.
C) marginal cost does not equal average total cost.
D) profits are usually positive.

Question

Quizplus · Accepted Answer

Monopolies have the ability to set prices higher than their marginal costs, resulting in a misallocation of resources. This is because they do not produce at the level where marginal cost equals price, which would maximize overall societal welfare. Instead, they produce at a lower level where they can charge a higher price and earn a positive profit. Therefore, choice A reflects the correct reason why monopolies misallocate resources.

Monopolies Misallocate Resources Because