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23 February, 22:04

A monopoly is an inefficient way to produce a product because

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  1. 23 February, 22:27
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    The output produced is less than the socially optimal level.

    Explanation:

    A monopoly market has a single producer selling a product with no close substitutes. The firm is a price maker and has a downward-sloping curve. The firm is able to maximize profits by producing at the level where the marginal revenue is the marginal cost.

    In perfect competition, the profit-maximizing level of output is where the marginal cost is equal to price. This output level is a socially optimal level.

    The monopoly output is less than the socially optimal level of output that is why it is inefficient.
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