Following this rule assures allocative efficiency. If P > MC, then the marginal benefit to society (as measured by

P) is greater than the marginal cost to society of producing additional units, and a greater quantity should be

produced. However, in the case of monopoly, price is always greater than marginal cost at the profit-

maximizing level of output, as you can see by looking back at Figure 9.6. Thus, consumers do not benefit from

a monopoly because it will sell a lower quantity in the market, at a higher price, than would have been the case

in a perfectly competitive market.

The problem of inefficiency for monopolies often runs even deeper than these issues, and also involves

incentives for efficiency over longer periods of time. There are counterbalancing incentives here. On one side,

firms may strive for new inventions and new intellectual property because they want to become monopolies
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