Market Forces do not Guarantee Technical Efficiency in Monopoly     If the firm is using a technically efficient production process its cost curves are ATC and MC. It maximizes profits by charging price P* and selling quantity Q* while it earns profit equal to the green shaded area.

    The curves labeled ATCTI and MCTI represent a technically inefficient production process. This would lead to higher prices (P*TI), lower output (Q*TI), and reduced profit represented by the blue shaded area. Because the firm is a monopolist and is still earning profit, market forces don't guarantee technical efficiency. The profit motive, fear of a takeover, or fear of a new entrant may all play a role in encouraging technical efficiency, but there are no market forces to guarantee it in monopoly.

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