Table 15-5

-Consider a profit-maximizing monopoly pricing under the following conditions.The profit-maximizing price charged for goods produced is $12.The intersection of the marginal revenue and marginal cost curves occurs where output is 10 units and marginal cost is $6.The socially efficient level of production is 12 units.The demand curve and marginal cost curves are linear.What is the deadweight loss?
A) $4
B) $6
C) $12
D) $16

Question

Table 15-5
 
-Consider a profit-maximizing monopoly pricing under the following conditions.The profit-maximizing price charged for goods produced is $12.The intersection of the marginal revenue and marginal cost curves occurs where output is 10 units and marginal cost is $6.The socially efficient level of production is 12 units.The demand curve and marginal cost curves are linear.What is the deadweight loss?
A) $4 
B) $6 
C) $12 
D) $16

Quizplus · Accepted Answer

The deadweight loss equals the area between the demand curve and the marginal cost curve, from the socially efficient level of output to the profit-maximizing level of output. In this case, the socially efficient level of output is 12 units, while the profit-maximizing level of output is 10 units. Thus, the deadweight loss is the area of a triangle with a base of 2 units (12-10) and a height of $6 (the difference in price between the socially efficient price of $6 and the profit-maximizing price of $12). 
So, deadweight loss = 0.5 x 2 x $6 = $6. Therefore, the best choice is option B.

Table 15-5 -Consider a Profit-Maximizing Monopoly Pricing Under the Following Conditions.The Profit-Maximizing