Question 1

If a monopoly situation arises from a perfectly competitive market, the portion of producer surplus that increases in a monopoly is transferred from the perfectly competitive market's

Accepted Answer

In a perfectly competitive market, producers and consumers both benefit from efficient production and competition, resulting in both producer surplus and consumer surplus. However, in a monopoly situation, the company can raise prices and limit output to maximize profits, resulting in a transfer of surplus from consumers to producers. Therefore, the portion of producer surplus that increases in a monopoly is transferred from the perfectly competitive market's consumer surplus.

Question 2

Deadweight loss is

Accepted Answer

Deadweight loss refers to the loss of social welfare that occurs when monopolies restrict output and increase prices. It represents a loss of benefit to consumers that no one else in society can obtain. Option A is incorrect as it only refers to taxes. Option B is incorrect as the loss of output occurs when a perfectly competitive firm becomes a monopoly, not the deadweight loss. Option D is incorrect as excess price paid by consumers over and above the cost of production does not quantify deadweight loss.

Question 3

Suppose that a perfect-maximizing monopolist operates with a horizontal marginal cost curve and no fixed costs. Which of the following would NOT be represented as part of the area between its demand curve and marginal cost curve?

Accepted Answer

Total costs would not be represented as part of the area between its demand curve and marginal cost curve because the monopolist operates with a horizontal marginal cost curve and no fixed costs, so total costs would be constant and not change with production levels. The area between the demand curve and marginal cost curve represents the monopolist's revenue and variable costs, which ultimately determines their economic profits and the amount of consumer surplus and deadweight loss in the market.

Question 4

"The deadweight loss of a monopoly equals the monopoly firm's profits." Do you agree or disagree? Why?

Accepted Answer

The answer of "The deadweight loss of a monopoly equals...

Question 5

The portion of consumer surplus that would have existed in a perfectly competitive market but is unobtainable by anyone in society under a monopoly is known as

Accepted Answer

The portion of consumer surplus that would have existed in a perfectly competitive market but is unobtainable by anyone in society under a monopoly is known as a deadweight loss. This is because monopolies restrict output and charge higher prices than in a perfectly competitive market, resulting in a loss of potential consumer surplus. Monopoly profits refer specifically to the additional profits earned by the monopolist due to their market power, which can contribute to the deadweight loss but are not the same thing. An unattainable surplus is not a common economic term. An external cost is a cost imposed on a third party outside of market transactions, which is not directly relevant to the scenario described.

Question 6

What is deadweight loss? Whose loss is it? Explain.

Accepted Answer

The answer of What is deadweight loss? Whose loss is...

Quiz 24: Monopoly