Suppose a patent is granted for a product that has the linear demand curve P = a - b Q.The constant marginal cost of producing this product is $50 per unit,a unit sells for $150,and consumers purchase 100 units of the good at that price.If the monopoly is maximizing profit,the deadweight loss is
A) $5000.
B) $2500.
C) $7500.
D) $10000.

Question

Quizplus · Accepted Answer

The monopoly maximizes profit where marginal revenue equals marginal cost. Given the demand curve P = a - bQ, the marginal revenue curve is MR = a - 2bQ. Setting MR = MC, we find the profit-maximizing quantity. The deadweight loss is the area of the triangle formed between the demand curve and the marginal cost curve from the monopoly quantity to the competitive quantity. Calculating this area gives a deadweight loss of $5000.

Suppose a Patent Is Granted for a Product That Has