Economists object to monopolies on the grounds of efficiency. Why is this? Explain
Monopolies produce an inefficiently low volume of output. The monopolist reduces output and raises price, equating the (lower) marginal revenue with marginal cost. Therefore, the marginal utility of the last unit consumed (measured by price) is above the marginal cost of production. Society's total utility can be increased by increasing output. Ideally, price should be cut so that the price equals the marginal cost of the last unit produced. This would maximize societal utility.
You might also like to view...
A real depreciation of a nation's currency gives rise to the ________ effect and the ________ effect on the current account
A) volume; value B) depletion; expansion C) surplus; deficit D) output; trade E) price; profit
If the demand curve for a good is unit price elastic and the supply curve is perfectly price elastic, a $1 specific tax imposed on the sellers of this good will
A) shift the supply curve up vertically by $1. B) shift the demand curve down vertically by $1. C) not raise price at all. D) cause price to increase but by less than $1.