In the market for Jiggly Wigs, the profit-maximising monopolist is charging a price $2 higher than marginal cost.Suppose instead of a monopoly this market was competitive, but the government placed a $2 tax on the competitive price of the good.What can we say about the relative dead-weight losses in the long-run?

Question

Quizplus · Accepted Answer

The dead-weight loss (DWL) depends on the elasticity of demand and supply, and the shape of the marginal cost curve. Without information on these factors, we cannot determine which scenario would result in a higher DWL.

In the Market for Jiggly Wigs, the Profit-Maximising Monopolist Is