Suppose a firm faces the demand function q = 800

Question

Suppose a firm faces the demand function q = 800 - 4P. The firm's total production costs are given by MC(q) = 9.5q + q². If the firm cannot price discriminate, the deadweight loss is $____. A) 2 B) 1.97 C) 1.85 D) 1.45

Quizplus · Accepted Answer

The deadweight loss is calculated by finding the difference between the quantity produced under monopoly and the socially optimal quantity. The monopoly quantity is found where MR = MC, and the socially optimal quantity is where P = MC. Solving these equations and calculating the area of the triangle formed by the demand curve and the marginal cost curve gives a deadweight loss of approximately $1.85.