Refer to the information provided in Table 13.1 below to answer the question(s) that follow.
Table 13.1
$$\begin{array} { | c | c | }
\hline \text { Price } ( \$ ) & \text { Quantity } \
\hline 4.00 & 2,000 \
\hline 3.50 & 2,400 \
\hline 3.00 & 2,800 \
\hline 2.50 & 3,200 \
\hline 2.00 & 3,600 \
\hline 1.50 & 4,000 \
\hline 1.00 & 4,400 \
\hline
\end{array}$$
-Refer to Table 13.1. If a monopoly faces the demand schedule given in the table and has a constant marginal and average cost of $1 per unit of providing the product, what is the societal loss associated with the monopoly?
A) $2,500
B) $5,000
C) $15,400
D) Indeterminate from the given information.

Question

Refer to the information provided in Table 13.1 below to answer the question(s) that follow.
Table 13.1
 $$\begin{array} { | c | c | } 
\hline \text { Price } ( \$ ) & \text { Quantity } \
\hline 4.00 & 2,000 \
\hline 3.50 & 2,400 \
\hline 3.00 & 2,800 \
\hline 2.50 & 3,200 \
\hline 2.00 & 3,600 \
\hline 1.50 & 4,000 \
\hline 1.00 & 4,400 \
\hline
\end{array}$$
-Refer to Table 13.1. If a monopoly faces the demand schedule given in the table and has a constant marginal and average cost of $1 per unit of providing the product, what is the societal loss associated with the monopoly?
A) $2,500
B) $5,000
C) $15,400
D) Indeterminate from the given information.

Quizplus · Accepted Answer

The societal loss, or deadweight loss, occurs because the monopoly produces less than the socially optimal quantity. The socially optimal quantity is where price equals marginal cost ($1). From the table, this is at a price of $1.00 and quantity of 4,400. The monopoly will produce where marginal revenue equals marginal cost, which is less than 4,400 units. The loss is the area of the triangle between the demand curve and the marginal cost curve from the monopoly quantity to the socially optimal quantity. Calculating this area gives a societal loss of $2,500.

Refer to the Information Provided in Table 13 -Refer to Table 13