• Monopoly
• Allocative efficiency
• Technical efficiency
• Marginal cost (MC)
• Average revenue (AR)
• Social surplus
• Consumer and producer surplus
• Lerner Index of Monopoly Power
• Market power

 Monopolies Are Allocatively Inefficient

Allocative efficiency is when goods and services are distributed optimally, meaning everyone gets exactly what they want. In a perfect world, the price we pay for a product would match the cost of producing one more unit of that product (marginal cost or MC). However, monopolies don't live in a perfect world.

Example: Let's say you're the only one in town selling unicorn frappuccinos. As a monopoly, you might charge $8 for each one (P), even though it only costs you $3 (MC) to make one more. This price exceeds the marginal cost, leading to allocative inefficiency.

 Monopolies Are Technically Inefficient

Unlike in a perfectly competitive market, monopolies aren't pressured to produce goods with the minimum average cost. It's like baking a cake and not worrying about using the cheapest ingredients because you're the only bakery around.

In a perfectly competitive market, the interaction of demand and supply leads to an equilibrium price and quantity. Monopolies, however, restrict output to raise prices, leading to less production and higher prices than in competitive markets.

Example: In the competitive market of teddy bears, the equilibrium price might be $10 with 1000 teddy bears sold. But if you held the teddy bear monopoly, you might only produce 700 teddy bears and sell each for $15, since there's no competition to stop you.