The figure shows the competitive market for milk.
-In the figure above, when the quantity of milk produced is 300 gallons per day, what is the deadweight loss?
A) $62.50
B) $125
C) $200
D) $937.50

Question

The figure shows the competitive market for milk.
-In the figure above, when the quantity of milk produced is 300 gallons per day, what is the deadweight loss?
A) $62.50 
B) $125 
C) $200 
D) $937.50

Quizplus · Accepted Answer

The deadweight loss is the triangle formed by the demand curve, the supply curve, and the equilibrium price. The area of the triangle is 1/2 * (P* - P) * (Q* - Q), where P* is the equilibrium price, P is the price at which the quantity of milk produced is 300 gallons per day, Q* is the equilibrium quantity, and Q is the quantity of milk produced at price P. In this case, P* = $10, P = $8, Q* = 400 gallons per day, and Q = 300 gallons per day. Therefore, the deadweight loss is 1/2 * ($10 - $8) * (400 - 300) = $100.

The Figure Shows the Competitive Market for Milk