A monopolist faces market demand given by P = 300

Question

A monopolist faces market demand given by P = 300 - 2Q.For this market,MR = 300 - 4Q and MC = 60.What is the deadweight loss due to the monopoly
A)$900
B)$1800
C)$3600
D)$7200

Quizplus · Accepted Answer

To find the deadweight loss, we need to first find the efficient level of output and price. This occurs where P = MC.

Setting 300 - 2Q = 60 gives us Q = 120. Substituting this back into the demand curve gives us P = 60, which is the efficient price.

The monopolist, however, will produce where MR = MC to maximize profits. Setting 300 - 4Q = 60 gives us Q = 60. Substituting this back into the demand curve gives us P = 180, which is the monopolist's price.

The deadweight loss can now be found by calculating the area between the demand curve and the marginal cost curve from Q = 60 to Q = 120. This can be done using the formula:

DWL = 0.5 * (Pmonopoly - Pefficient) * (Qefficient - Qmonopoly)

DWL = 0.5 * (180 - 60) * (120 - 60) = $3600

Therefore, the answer is C) $3600.