The deadweight loss that arises from a monopoly is a consequence of the fact that the monopoly
A)price is higher than the socially-optimal price.
B)price equals marginal revenue.
C)price is the same as average revenue.
D)maximizes profit where marginal revenue equals marginal cost.

Question

Quizplus · Accepted Answer

A monopoly has market power, which means it can set a higher price than what would be set in a competitive market. This higher price reduces the quantity of goods traded, resulting in a deadweight loss. The socially-optimal price is where marginal cost equals marginal benefit, but the monopoly's price is higher than this, resulting in a deadweight loss. Therefore, the deadweight loss arises from the monopoly pricing above the socially-optimal price.

The Deadweight Loss That Arises from a Monopoly Is a Consequence