Question

The first thing to notice about monopoly is that price exceeds the marginal cost of production: PM > MC. The price in a market reflects the value to society of another unit of output. Marginal cost reflects the cost to society of the resources needed to produce an additional unit of output. Since price exceeds marginal cost, the monopolist produces less output than is socially desirable. In effect, society would be willing to pay more for one more unit of output than it would cost to produce the unit. .

Why and How is it that society want to pay more for one more unit of output and what does it mean by the "society" ???

as far as I know, its better for us to pay less to obtain any amount of output. but what makes society to pay more? how should I interpret above sentence?

please provide detail explanation

Answer 1

It is for the reason that the monopolist is the only firm in the market, its demand curve being the same as the market demand curve (downward-sloping). Since monopoly means specific enterprise is the only provider of a specific product and thus characterized by the lack of economic competition to produce the good or service, lack of viable substitute goods, and thereby possibility of a high monopoly price well above the seller's marginal cost. All this kept in mind since there is no alternatives available for the consumers, they end up paying more.