Why is profit max not productively efficient?

In other words, on a monopoly or oligopoly diagram, why when MC=MR does it not have it’s cost where AC is at its lowest. Surely to profit maximise you have to keep AC lowest?

Reply 1

Jas921

Original post by aaran.k

In other words, on a monopoly or oligopoly diagram, why when MC=MR does it not have it’s cost where AC is at its lowest. Surely to profit maximise you have to keep AC lowest?

Hi,

In a monopoly, firms do not have the incentive to keep costs at their lowest since they are the only seller in the market. Since they aren’t competing against other firms, they do not need to keep costs low to remain competitive so they don’t necessarily have to be productively efficient.

Hope this helps!

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