Exhibit 16-4
-Refer to Exhibit 16-4. Suppose the government announced it would give monopoly power to one firm in the industry through an exclusive license. If successful, the welfare l oss due to monopoly would be equl to what?

Question

Exhibit 16-4 
-Refer to Exhibit 16-4. Suppose the government announced it would give monopoly power to one firm in the industry through an exclusive license. If successful, the welfare l oss due to monopoly would be equl to what?

Quizplus · Accepted Answer

If a monopoly is created, the price will increase to Pm and output will decrease to Qm. This will result in a welfare loss equal to area e, which represents the reduction in consumer surplus due to higher prices and the reduction in producer surplus due to lower output. Areas a, b, f, and g are not relevant to the welfare loss caused by monopoly power.

Exhibit 16-4 -Refer to Exhibit 16-4. Suppose the Government Announced It Would