Question

According to our textbook, a firm with market power produces "less than the socially efficient level of output because it charges a price that exceeds its marginal cost of production". As a manager isn't market power your goal? How do you balance your need for profit with society's need to produce goods and services as cheaply as possible?

Answer 1

It can be mentioned that market power is indeed not a goal but an advantagethat can be helpful in order to generate more profits as a manager and in this regard in one way when you look at it what happens is that when you price your product about your marginal cost you would sell the socially less efficient level of output as a result of which you would have more profits in your bag and these more profits can actually help you to invest in the research and development aspect of the company as a result of which you can come up with better productivity methods and Technology so that the cost of the goods can be reduced and in this way the profits are reinvested so that the cost is reduced and ultimately the price will be reduced due to the reduction and cost of production and more sale can be done and in this way socially efficient output is produced with the help of profits ultimately so that goods are available for cheap.