an iportant economic problem associated with pure monoply is that at the profit maxinzing outputs, resources are

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20-12-2022
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an iportant economic problem associated with pure monoply is that at the profit maxinzing outputs, resources are

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Mariya251 Mariya251 · Answer 1 · 2022-12-23T12:06:25+01:00

An important economic problem associated with pure monopoly is that at the profit maximizing outputs, resources are under allocated because price exceeds Marginal cost.

In a market of monopoly, a monopolist is a single seller of the product. So, he has full control on the prices. This, he charges price where the marginal revenue curve intersects with the marginal cost curve. The point where MR= MC is his profit maximising point. So, he charge higher prices at this point and sells lower quantity to increase its sales revenue. Thus, for profit maximisation, he charge higher prices which exceeds its marginal cost and creates deadweight loss and hence there is no allocative efficiency. It faces negatively downward sloping curve. Monopoly is considered as the most inefficient market as there the resources are not utilised efficiently, they are underallocated to the firms in the market.

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