Monopolies, deadweight loss, social cost

Reasons why monopolists do not exhibit resource allocative efficiency. Why monopolists cannot obtain any price they wish. Deadweight losses when a firm produces at Q =MC. Social costs of maximizing marginal utility.

1. The perfectly competitive firm exhibits resource allocative efficiency (P=MC), but the single price monopolist does not. What is the reason for this difference?

2. Because the monopolist is a single seller of a product with no close substitutes, is it able to obtain any price for its good that it wants? Why or why not?

3. Is there a deadweight loss if a firm produces the quantity of output at which price equals marginal cost? explain.

4. It has been noted that rent seeking is individually rational, but socially wasteful. Explain.

Solution Summary

Reasons why monopolists do not exhibit resource allocative efficiency. Why monopolists cannot obtain any price they wish. Deadweight losses when a firm produces at Q =MC. Social costs of maximizing marginal utility.