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Scenario: Monopolist
The demand curve for a monopolist is P = 75 - 0.5Q, and the monopolist has the following MC expressed as P = 2Q. Assume also that ATC at the profit-maximizing level of production is equal to $12.50.
-(Scenario: Monopolist) Look at the scenario Monopolist. The deadweight loss from this monopolist's production is:
A) $31.25.
B) $12.50.
C) $0.00
D) $30.00.

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Quizplus · Accepted Answer

The deadweight loss is the difference between the consumer surplus and producer surplus in a perfectly competitive market and the consumer surplus and producer surplus in a monopoly market. In this case, the consumer surplus in a perfectly competitive market is given by the area of the triangle below the demand curve and above the price line, which is equal to 0.5 * (75 - 12.50) * 12.50 = $31.25. The producer surplus in a perfectly competitive market is given by the area of the rectangle below the price line and above the marginal cost curve, which is equal to 12.50 * 12.50 = $156.25. The consumer surplus in a monopoly market is given by the area of the triangle below the demand curve and above the price line, which is equal to 0.5 * (75 - 25) * 25 = $625. The producer surplus in a monopoly market is given by the area of the rectangle below the price line and above the marginal cost curve, which is equal to 25 * 25 = $625. The deadweight loss is therefore equal to $31.25 + $156.25 - $625 - $625 = $31.25.

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