Choose the correct statement.The deadweight loss from monopoly pricing arises because:
i. monopolists profits are a transfer from consumers to producers
ii. the value some consumers place on the good is greater than the cost of providing it
iii. the market price is above marginal cost
A)(i) and (ii)
B)(ii) and (iii)
C)(iii) only
D)(i), (ii) and (iii)

Question

Quizplus · Accepted Answer

Deadweight loss in monopoly pricing primarily occurs because some consumers who value the good more than its marginal cost are not able to purchase it due to the high price (ii), and because the market price is set above the marginal cost (iii), leading to inefficient allocation of resources. Statement (i) describes a transfer of surplus from consumers to producers, which is not a deadweight loss but a redistribution of wealth.

Choose the Correct Statement