# What is the socially optimal price for a monopoly?

## What is the socially optimal price for a monopoly?

A Socially Optimal Price is a price where the monopoly reaches allocative efficiency (DARP=MC). Since a price ceiling that low would cause some monopolies to incur an economic loss, a Fair Return Price is a viable alternative. The Fair Return Price is found where price equals Average Total Cost (DARP=ATC).

## What is the socially optimal price in economics?

The socially optimal price to charge a person for any good is the marginal cost of providing the good to that person. The marginal cost of having an extra person enter a National Park is zero (as long as the park isn’t overcrowded, in which case we’d have an externality).

Are monopolies a social optimal?

The allocatively efficient quantity of output, or the socially optimal quantity, is where the demand equals marginal cost, but the monopoly will not produce at this point. Instead, a monopoly produces too little output at too high a cost, resulting in deadweight loss.

What is an example of a natural monopoly quizlet?

Bottled water is a good example of a natural monopoly. Increasing the number of firms in a natural monopoly cost environment would result in higher average total costs. Regulating a natural monopoly encourages them to be efficient and lower costs.

### How do you calculate socially optimal quantity for a monopoly?

The MSC curve is given by MSC=Q+2 → Set the MSC equal to the marginal so- cial benefit (in this case the MSB is the market demand curve) to find the so- cially optimal amount of the good. 30-Q=Q+2 → Q =14 is the socially optimal amount of the good.

### When the monopolist produces the socially optimal level of output?

If a monopoly was regulated to produce at the socially optimal level of output, it would produce where the price (AKA demand) intersects the marginal cost curve (P=MC). At this level of output, allocative efficiency is achieved and there is no deadweight loss.

Is a monopoly socially efficient or inefficient and why?

A monopoly business results in an inefficient production. On the other hand, perfect competition leads to social efficiency. Socially efficient production is possible under perfect competition since price equals marginal cost (P = MC).

Is Starbucks a monopoly?

Starbucks does not have a great monopoly power in the US. Starbucks operates more like an oligopoly competitive market structure.

## What are socially optimal outcomes?

The output level that reflects all the costs and benefits associated with a transaction i.e. it is the equilibrium that would be achieved if the market outcome reflects the effect of externalities.

## Where is socially optimal quantity?

Socially Optimum Quantity Formula; where marginal social benefit equals cost. In words this means that when the marginal social benefit of output is equal to the marginal social cost of output, then we will achieve the socially optimal quantity of output.

How do you calculate social optimal?

What is socially optimal level?

### What is an example of a natural monopoly?

What is a Natural Monopoly. A natural monopoly is a type of monopoly that occurs due to high fixed costs and a need to achieve extreme economies of scale. In other words, it is only economically viable for one business to serve the market. Examples include the likes of utilities and train lines.

### How does a natural monopoly maximize profits?

A natural monopoly will maximize profits by producing at the quantity where marginal revenue (MR) equals marginal costs (MC) and by then looking to the market demand curve to see what price to charge for this quantity. This monopoly will produce at point A, with a quantity of 4 and a price of 9.3.

What are economies of scale in a natural monopoly?

Economies of scale is a crucial aspect of a natural monopoly. This is because only one firm can truly benefit from economies of scale in a market that is a natural monopoly. In economics, we refer to this as ‘long-tail economies of scale’. Essentially, long-run average costs continue to fall until the vast majority of the market is serviced.

Are natural monopolies good or bad for society?

Although natural monopolies are often frowned upon by regulators, the truth is that sometimes they are the best way for society as a whole to obtain the necessary goods or services in the most cost-effective way possible.