If the marginal willingness to pay for a good exceeds its marginal cost by $4 per unit and the efficient output of the good exceeds actual output by 1 million units, a deadweight loss of $2 million is imposed on the economy.

Question

Quizplus · Accepted Answer

The deadweight loss can be found by multiplying the difference between efficient output and actual output (1 million units) by the marginal willingness to pay minus marginal cost ($4). This equals $4 million. The deadweight loss is half of this, or $2 million. Therefore, option A is true.

If the Marginal Willingness to Pay for a Good Exceeds