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Using graphs, explain why monopolies are socially inefficient.

Using graphs, explain why monopolies are socially inefficient.

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Answer #1

It can actually be mentioned that the profit maximizing point of monopoly is when the marginal revenue equals the marginal cost and the price will be higher than the marginal cost as the demand curve is above the marginal revenue curve and in this regard the socially optimal level is when the marginal cost curve meets the demand curve as shown in the figure and that is the reason why they produce less than what is the social efficient output and therefore a dead weight loss is resulted from it as shown in the figure and that is the reason monopolies are usually inefficient

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