Refer to the information provided in Table 13.3 below to answer the question(s) that follow.
Table 13.3
$$\begin{array} { | c | c | }
\hline \text { Price } ( \$ ) & \text { Quantity } \
\hline 4.00 & 100 \
\hline 3.50 & 200 \
\hline 3.00 & 300 \
\hline 2.50 & 400 \
\hline 2.00 & 500 \
\hline 1.50 & 600 \
\hline 1.00 & 700 \
\hline
\end{array}$$
-Refer to Table 13.3. 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) $0
B) $225
C) $450
D) Indeterminate from the given information.

Question

Refer to the information provided in Table 13.3 below to answer the question(s) that follow.
Table 13.3
 $$\begin{array} { | c | c | } 
\hline \text { Price } ( \$ ) & \text { Quantity } \
\hline 4.00 & 100 \
\hline 3.50 & 200 \
\hline 3.00 & 300 \
\hline 2.50 & 400 \
\hline 2.00 & 500 \
\hline 1.50 & 600 \
\hline 1.00 & 700 \
\hline
\end{array}$$
-Refer to Table 13.3. 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) $0
B) $225
C) $450
D) Indeterminate from the given information.

Quizplus · Accepted Answer

The societal loss, or deadweight loss, occurs because the monopoly will produce where marginal revenue equals marginal cost (MR=MC), not where price equals marginal cost (P=MC) as in a perfectly competitive market. The monopoly maximizes profit by producing less and charging more than a competitive market would. Given the constant marginal cost of $1, the competitive outcome would be a price of $1 and a quantity of 700 units (from the table). Without the specific quantity the monopoly chooses to produce, we can't directly calculate the monopoly quantity, but we can infer the loss of consumer and producer surplus due to the reduction in quantity produced and sold. The area of the triangle that represents the deadweight loss can be calculated if we knew the exact quantity and price the monopoly chooses, but since we don't have that information directly, we can't calculate it precisely without making assumptions about the monopoly's behavior based on the demand schedule. However, the correct answer is identified as B, $225, which suggests a specific calculation method or assumption about the monopoly's output and pricing strategy that isn't detailed in the question. This might involve estimating the monopoly's quantity and price based on the marginal revenue curve, which is not provided, and comparing it to the competitive outcome.

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