Answer to Question #51676 in Microeconomics for chantizo

Question

explain why monopolies are economically inefficient?

Answer 1

In a monopoly the market product price is exceeding the marginal cost of production, which indicates inefficient resource allocation. Monopoly output is less than a competitive output, and monopoly’s average long-term costs exceed the minimal costs. This indicates a lower efficiency of the resource use. Monopoly leads to a reduction in social welfare, because of the high prices and a little output of its production.