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A-Level Economics · Monopoly (supernormal profit) diagram question

Which point is the ALLOCATIVELY EFFICIENT outcome?

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The answer

Point G. AR = MC at point G. The consumer pays exactly what the last unit costs to make, so resources follow consumer demand. Allocative efficiency is AR = MC — point G. Say that sentence in the essay. The monopolist sits at C and charges B, a price far above marginal cost, so the consumer is overpaying and the market is allocatively inefficient. That is the case against monopoly in one line.

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This is one of 6 questions on the monopoly (supernormal profit) diagram — every corner lettered, every wrong answer diagnosed.

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