Answer to Question #155331 in Microeconomics for suchayana

Question

For a monopoly, the following efficiencies are satisfied

A) Resource allocative efficiency.

B) Productive efficiency.

C) A and B.

D) None of the above.

Answer 1

The resource allocative efficiency occurs when there is an optimal distribution of goods and services, taking into account consumer's preferences. In other words, at output level the Price equals the Marginal Cost of production ($P=MC$). A monopoly is allocativelly inneficient because the monopoly can increase price above the marginal cost of production ($P>MC$).

The productive efficiency occurs when the output is at the lowest point on the short run average cost curve. Since the monopoly's output doesn't occur at the lowest point on the average cost curve, the monopoly is productively inefficient. Therefore, the answer is D) None of the above.

Answer:

D) None of the above.