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

a. The firm has a market power only when there is less competition in the market. A firm with absolute market power would produce less than the socially-efficient output level to increase the profit margin. The firm would set prices where it can earn super-normal profits. Thus, as a manager, it would be in the firm's best interest to set prices more than the marginal cost as long as the firm is enjoying market power.

b. The objective of the firm is to increase profit as much as it can. However, the manager should set the prices taking into consideration the price elasticity of demand. Excessive prices could result in the non-consumption of the goods. Therefore, a firm with market power would not provide goods and services at low prices unless the demand for goods is highly elastic.