The following figure shows the market demand curve for penicillin, an antibiotic medicine. Initially, the market was supplied by perfectly competitive firms. Later, the government granted the exclusive right to produce and sell penicillin to one firm. The figure also shows the marginal revenue curve (MR) of the firm once it begins to operate as a monopoly. The marginal cost is constant at $3, irrespective of the market structure.

-Refer to the figure above.What is the deadweight loss when the market is converted into a monopoly?

Question

The following figure shows the market demand curve for penicillin, an antibiotic medicine. Initially, the market was supplied by perfectly competitive firms. Later, the government granted the exclusive right to produce and sell penicillin to one firm. The figure also shows the marginal revenue curve (MR) of the firm once it begins to operate as a monopoly. The marginal cost is constant at $3, irrespective of the market structure.
 
-Refer to the figure above.What is the deadweight loss when the market is converted into a monopoly?

Quizplus · Accepted Answer

Deadweight loss in a monopoly occurs because the monopolist produces less and charges a higher price than in a competitive market, leading to a loss of consumer and producer surplus that is not offset by an increase in revenue for the monopolist. The area representing this loss is typically triangular, located between the demand and supply curves (or the marginal cost curve in this case), from the monopolist's quantity to the competitive quantity level. Without seeing the figure, the exact calculation cannot be done, but based on common economic principles, a deadweight loss does occur in monopolies, indicating that $0 is incorrect, and without the specific details, the exact value cannot be determined. However, assuming the question provides enough information to calculate or estimate the deadweight loss, and given the options, $45 might be considered a plausible estimate based on typical graphical analysis.

The Following Figure Shows the Market Demand Curve for Penicillin