The total welfare cost of a monopoly that engages in rent-seeking activities
A)equals only the portion of lost consumer surplus that is not transferred to the monopolist
B)includes the use of resources devoted to rent seeking
C)equals the total reduction in consumer surplus
D)equals the total economic profit earned by the monopolist
E)excludes the use of resources devoted to rent seeking

Question

Quizplus · Accepted Answer

The total welfare cost of a monopoly that engages in rent-seeking activities includes not only the portion of lost consumer surplus that is not transferred to the monopolist, but also the use of resources (time, money, and effort) devoted to rent-seeking. These resources could have been used to produce goods and services that could have increased overall welfare. Therefore, answer B is correct. Answers A, C, D, and E are incorrect because they do not consider the additional costs associated with rent-seeking activities.

The Total Welfare Cost of a Monopoly That Engages in Rent-Seeking