Why does a monopoly cause a deadweight loss?
A)because it does not produce some output for which marginal benefit exceeds 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 charges a higher price than under perfect competition, leading to a situation where demand exceeds supply. This results in the loss of potential gains from mutually beneficial transactions (i.e., surplus) that could have occurred if the market had been more competitive. Therefore, the monopoly does not produce some output for which marginal benefit exceeds marginal cost, representing the deadweight loss.

Why Does a Monopoly Cause a Deadweight Loss