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 the government granted an exclusive license to one firm, it would give that firm monopoly power in the market. This would result in a reduction in consumer surplus (areas a + b + e) and a deadweight loss (area e), as shown in Exhibit 16-4. Therefore, the welfare loss due to monopoly would be equal to area e, which is represented by choice C.