Why is a monopoly inefficient?
What will be an ideal response?
A monopoly is inefficient because it produces such that price is greater than marginal cost. To achieve maximum economic profits, the monopolist restricts output and raises price. When price is greater than the opportunity cost to society of producing the last unit, the allocation of resources is inefficient. Society would prefer more resources were allocated into production of the good produced by the monopolist.
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To simplify our consumption models, suppose U.S. consumers only purchase food and all other goods where food is plotted along the horizontal axis of the indifference map. If the U.S
Congress passes an economic stimulus package that pays $300 to each person, how does this affect the budget line for each consumer? A) Makes the budget line steeper B) Makes the budget line flatter C) Parallel outward (rightward) shift D) Parallel inward (leftward) shift E) none of the above
Research by Richard Layard indicates that an increase in a country's level of output per capita will
A) always increase happiness in that country. B) always decrease happiness in that country. C) generally have no effect on happiness in that country. D) increase happiness in that country if output per capita is relatively low.