Use the figure below, which shows the linear demand and constant cost conditions facing a firm with a high barrier to entry, to answer Questions .
-$_________ the deadweight loss is caused by the market power created by the high entry barrier

Question

Use the figure below, which shows the linear demand and constant cost conditions facing a firm with a high barrier to entry, to answer Questions  . 
-$_________ the deadweight loss is caused by the market power created by the high entry barrier

Quizplus · Accepted Answer

The deadweight loss is caused by the market power created by the high entry barrier. The deadweight loss is the loss of consumer surplus and producer surplus that occurs when the market is not perfectly competitive. In this case, the high entry barrier prevents new firms from entering the market, which gives the existing firms market power. This market power allows the firms to charge a higher price than they would in a perfectly competitive market, which reduces consumer surplus. The firms also produce less output than they would in a perfectly competitive market, which reduces producer surplus. The deadweight loss is the area of the triangle that is formed by the difference between the price and marginal cost in a perfectly competitive market and the price and marginal cost in the market with the high entry barrier. In this case, the deadweight loss is $625,000.

Use the Figure Below, Which Shows the Linear Demand and Constant