Profit Maximizing Monopolists will almost Never be Productively Efficient     Not only are there no market forces inducing a Monopolist toward productive efficiency, profit incentives will usually encourage a monopolist to produce an amount which is quite different from the productively efficient level of output.

    Because it is profit maximizing to produce where MR = MC, the firm whose data are shown to the right would be worse off if it tried to produce the productively efficient level of output, Q*PE. All the units of output greater than Q* earn Marginal Revenue below their Marginal Cost, causing the firm to reduce its profits by the red shaded area if it sells Q*PE.

Copyright © 1995-2004, Inc. - All Rights Reserved