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Pricing Above Marginal Cost as a Source of Pareto Inefficiency
When a producer of a differentiated good sets a price higher than the marginal cost of production, the resulting allocation of the good is Pareto inefficient. This inefficiency occurs because some potential consumers, who value the good more than its marginal production cost but are not willing to pay the set price, are excluded from purchasing it, preventing mutually beneficial trades from taking place.
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Pricing Above Marginal Cost as a Source of Pareto Inefficiency
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