Because a monopoly is a price maker and prices its products in the elastic portion of the demand curve, its output is less than that required to achieve minimum average total cost. In addition, the monopoly's price will exceed its marginal cost at this level of output. Monopoly therefore creates

Question

BlackTom AI · Accepted Answer

The question sets up the standard monopoly outcome: price setting in the elastic portion of demand, output below the social optimum, and price above marginal cost. Now, let's evaluate each option in turn.
Option 1: 'greater efficiency.' This is inconsistent with the typical monopoly result. When price exceeds marginal cost and output is restricted, there is a loss of allocative efficiency, not an increase in efficiency. Therefore this choice is incorrect.
Option 2: 'an efficiency loss.' This matches the core idea that monopolies produce less than the socially efficient quantity, with a price above marginal cost, creating deadweight loss and overall inefficiency. This option aligns with standard welfare analysis of monopoly.
Option 3: 'a marginal loss.' The term 'marginal loss' is not a standard economic concept in this context. Losses in monopoly analysis are typically described as deadweight loss or allocative inefficiency, not a singular 'marginal loss.' Thus this wording is imprecise and inappropriate here.
Option 4: 'a revenue loss.' While monopolies may alter revenue, the central point of the question is about output and welfare implications. The price premium over marginal cost and the reduced output generate allocative inefficiency rather than simply a 'revenue loss,' so this option misses the key effect described in the scenario.
Overall, the analysis centers on how restricted output and prices above marginal cost lead to an inefficiency in resource allocation, not to increased efficiency, ambiguous marginal losses, or purely revenue concerns.

Because a monopoly is a price maker and prices its products in the elastic portion of the demand curve, its output is less than that required to achieve minimum average total cost. In addition, the monopoly's price will exceed its marginal cost at this level of output. Monopoly therefore creates

View Explanation

Log in for full answers

Similar Questions

Suppose The Louvre owns a piece of art that generates a value of $2 million to the viewers who visit the museum, and suppose the same piece of art could generate a value of $3.5 million to the visitors of The Metropolitan Museum of Art if it were instead placed there.

Suppose The Louvre owns a piece of art that generates a value of $2 million to the viewers who visit the museum, and suppose the same piece of art could generate a value of $3.5 million to the visitors of The Metropolitan Museum of Art if it were instead placed there.

Efficiency loss is also known as Blank ______ loss.

What is another name for deadweight loss?

Deadweight loss can be thought of a surplus that is transferred from producers or consumers and given to :

Deadweight loss can be thought of a surplus that is transferred from producers or consumers and given to :

More Practical Tools for International Students

Homework AI Solver

Stylized Writing Assistant

Plagiarism Checker Assistant

Citation Assistant

In-Class Translation Assistant

Class Notes Assistant

Quiz Search Assistant

Past Exam Questions by School

Smart Practice Assistant

Adaptive Practice

Making Your Study Simpler