Monopoly Does Not Achieve Allocative Efficiency

    The cost of monopoly pricing relative to allocative efficiency is a form of deadweight loss, shown as the brown shaded area to the right.

    The deadweight loss is not the result of bad decision making on the part of the monopolist. On the contrary, it is the result of pursuing simple profit maximizing behavior. This is one of many objections against monopolies. Simply maximizing profits by such firms leads to a misallocation of resources from the standpoint of allocative efficiency.

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