The following figure shows the demand (D), marginal revenue (MR), and marginal cost (MC) curves for a monopolist.

-Refer to the figure above.The monopolist can freely set its price,but the government agreed to compensate consumers for their loss in consumer surplus in comparison to the competitive outcome.What is the amount of compensation per unit of output traded?

Question

The following figure shows the demand (D), marginal revenue (MR), and marginal cost (MC) curves for a monopolist.
 
-Refer to the figure above.The monopolist can freely set its price,but the government agreed to compensate consumers for their loss in consumer surplus in comparison to the competitive outcome.What is the amount of compensation per unit of output traded?

Quizplus · Accepted Answer

The correct answer is D because it calculates the area of the trapezoid that represents the loss in consumer surplus due to the monopolist setting a higher price than the competitive outcome. This area is calculated by taking the average of the bases (Q₁ and the midpoint of Q₁ and Q₃) multiplied by the height (P₁ - P₃), and then dividing by Q₁ to find the compensation per unit of output traded.

The Following Figure Shows the Demand (D), Marginal Revenue (MR)