14. How does monopoly product quality compare to the quality a social planner wo

Question

14. How does monopoly product quality compare to the quality a social planner would choose? a. The monopolist targets the marginal consumer's valuation of quality, whereas the social planner targets the average consumer's. This leads the monopolist to make inefficiently low-quality products. b. The monopolist targets the marginal consumer's valuation of quality, whereas the social planner targets the average consumer's. This leads the monopolist to make inefficiently high-quality products. c. There is no difference due to a standard neutrality argument. d. None of the above.

Explanation / Answer

In monopoly, one firm controls the entire market for a specific product. The main objective of a monopolist is to earn maximum revenues as consumers has no choice for alternative products in a monopoly market. Therefore, a monopolist firm does not stress on product quality. In a monopoly market, there may be multiple firms,each selling differentiated products. The monopolists mainly focus on the product evaluation in terms of price, quality and quantity of the marginal customer. But social planners targets on the product evaluation by each consumer on an average. Therefore the answer is (a)

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