Is Monopoly really

inefficient?

Efficiency

Assuming that transaction costs are zero, efficiency is attained when output is produced at a point where MV = MC. 

Maximizing condition  of a monopoly

A monopoly will produce at a point that MR = MC (provided that AR >=AC). 

Traditional view

The conclusion that monopoly is inefficient is based on the use of uniform pricing.

Under uniform pricing, marginal value is greater than marginal revenue.

Therefore, a monopolist who produces at MR = MC will cause MV > MC. Resource allocation is therefore inefficient. (Read diagram 4)

Since MV > MC, it is argued that a monopolist will under-produce for the sake of his own interest - maximizing wealth!

Errors of the traditional view

Let's compare the monopoly rent under the following two pricing methods:

Perfect price discrimination 

Uniform pricing

Obviously, a monopolist that practises perfect price discrimination can get more rent. More important, if perfect price discrimination is adopted, the monopolist can be efficient.

Why doesn't a monopolist adopt other pricing methods to get more rent when transaction costs are zero? This is a question that the traditional view fails to provide an answer. Thus, the traditional view is just an asserted result, not derived from the maximizing assumption!