Figure 11-7

For the firm in Figure 11-7, an unregulated monopolist, output falls below the efficient level in the short run by how much?

Question

Figure 11-7

For the firm in Figure 11-7, an unregulated monopolist, output falls below the efficient level in the short run by how much?

Quizplus · Accepted Answer

The efficient level of output is where marginal cost equals marginal revenue. In the short run, the monopolist produces where marginal cost equals marginal revenue and sets a price to maximize profits. From the graph, we can see that at the profit-maximizing output level, P > MC. The efficient level of output occurs where P = MC, which is at an output level of 75. Thus, output falls below the efficient level by 75 - 50 = 25, and since each unit sells for $4, the welfare loss is equal to 25 x $4 = $100. Therefore, the answer is B.

Figure 11-7 For the Firm in Figure 11-7, an Unregulated Monopolist, Output