According to Schumpeter, monopoly profit acts as incentives for innovation. This is because monopolies have a large market share and can therefore charge higher prices than competitive firms. This higher price allows them to earn a profit, which they can then invest in research and development. This investment can lead to new products and services, which can benefit consumers.
A. Monopolies are inefficient. This is because monopolies have no incentive to lower prices or improve their products or services. They can charge whatever price they want and consumers will have to pay it, because there is no competition. This leads to higher prices and lower quality goods and services for consumers.
B. Monopoly profit acts as incentives for innovation. This is true, as explained above.
C. Monopolies are allocatively efficient. This is not true, as explained above.
D. Monopolies are productively efficient. This is not necessarily true. Monopolies may be productively efficient if they have lower costs than competitive firms. However, they may also be productively inefficient if they do not have any incentive to lower their costs.