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Figure: PPV
-(Figure: PPV) Look at the figure PPV, which shows the demand and marginal revenue for a pay-per-view football game on cable TV. Assume that the marginal cost and average cost are a constant $20. If the cable company is a monopoly, how much is deadweight loss when the monopolist maximizes profit?
A) $0
B) $20
C) $80
D) $160

Question

Use the following to answer questions:
Figure: PPV 
-(Figure: PPV) Look at the figure PPV, which shows the demand and marginal revenue for a pay-per-view football game on cable TV. Assume that the marginal cost and average cost are a constant $20. If the cable company is a monopoly, how much is deadweight loss when the monopolist maximizes profit?
A) $0 
B) $20 
C) $80 
D) $160

Quizplus · Accepted Answer

The deadweight loss in a monopoly occurs because the monopolist sets a price higher than marginal cost, reducing the quantity sold compared to a competitive market. The area of deadweight loss is a triangle between the demand curve and the marginal cost curve from the monopoly quantity to the competitive quantity. Given the constant marginal cost of $20, the deadweight loss is calculated based on the difference in quantity and price between the monopoly and competitive equilibrium.

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