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Monopolies, deadweight loss, social cost

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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.

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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.

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1. The demand curve for a perfectly competitive firm is flat because there are many substitutes available. Monopolists, on the other hand, have a downward sloping demand curve. This means that they are price-makers; they can influence price by changing output. The perfectly competitive firm is too small to do this.

Like the competitive firm, the monopoly's output rule is MR=MC. The price charged to maximize profit is higher on the demand curve than the price that maximizes ...

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