Why are monopolies inefficient?

A monopoly is occurs when there is a single firm is the only supplier of a good or service in a given economy. Thus, it is able to choose the price that it wants (price maker) and a given quantity that will maximise the firm's profits. This is opposed to a perfect competition where a given firm is a price taker and optimal output is determined by equating MC and MR. In a monopoly, however, price is higher and quantity is lower than perfect competition.
Thus, monopolies are inefficient because they do not respond adequately to the demands of the market and will create a deadweight loss for consumers and the economy as a whole.

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Answered by Harout K. Economics tutor

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