Why does a monopoly cause a deadweight loss?
A)because it stops producing output at a point where price is above marginal cost
B)because it appropriates a portion of consumer surplus for itself
C)because it increases producer surplus at the expense of consumer surplus
D)because it does not produce some output for which demand exceeds supply

Question

Quizplus · Accepted Answer

A monopoly causes a deadweight loss because it restricts output and sets a price above marginal cost, which reduces the amount of consumer surplus and creates a loss of overall economic efficiency. The deadweight loss refers to the loss in total surplus (the combination of consumer and producer surplus) that occurs when a monopolist does not produce the quantity of output where marginal cost equals marginal revenue (or price). This leads to a market inefficiency where some potential trades that would benefit both consumers and producers do not occur.

Why Does a Monopoly Cause a Deadweight Loss