Question

For a monopoly, the socially efficient level of output occurs where marginal revenue equals marginal cost. average revenue equals marginal cost. marginal revenue equals average total cost. average revenue equals average total cost.

Answer 1

Answer:

The correct answer is: average revenue equals marginal cost.

Explanation:

In a monopoly, the socially efficient level of output is where the average revenue is equal to marginal cost. At this level, the price paid for the product is equal to the additional cost incurred on the production of that unit of product.

But the monopolist maximizes its profit by producing at the level where the marginal revenue is equal to marginal cost. This output level is less than the socially optimal level and creates a dead weight loss.