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Figure: The Profit-Maximizing Output and Price
-(Figure: The Profit-Maximizing Output and Price)Use Figure: The Profit-Maximizing Output and Price.Assume that there are no fixed costs and AC = MC = $200.If this were a perfectly competitive industry,deadweight loss would be:
A)$0.
B)$200.
C)$1,600.
D)$3,200.

Question

Use the following to answer question:
Figure: The Profit-Maximizing Output and Price 
-(Figure: The Profit-Maximizing Output and Price)Use Figure: The Profit-Maximizing Output and Price.Assume that there are no fixed costs and AC = MC = $200.If this were a perfectly competitive industry,deadweight loss would be:
A)$0. 
B)$200. 
C)$1,600. 
D)$3,200.

Quizplus · Accepted Answer

In a perfectly competitive market, the market equilibrium output level would be where MC = P, which in this case would be at an output of 400 units and a price of $400. Since there are no fixed costs, the ATC is also $200, which means that the firm earns normal profit (zero economic profit) at this output level. Therefore, there is no deadweight loss in a perfectly competitive market since resources are allocated efficiently.

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