If the inverse demand curve a monopoly faces is p = 100 - 2Q,and MC is constant at 16,then the deadweight loss from monopoly equals
A) $21.
B) $441.
C) $882.
D) $1,764.

Question

Quizplus · Accepted Answer

The deadweight loss (DWL) from monopoly can be calculated by finding the area of the triangle formed by the monopoly quantity, the competitive quantity, and the demand curve. First, find the monopoly quantity (Qm) where MR = MC. The inverse demand curve is p = 100 - 2Q, so the MR curve, which has the same intercept but twice the slope, is MR = 100 - 4Q. Setting MR = MC gives 100 - 4Q = 16, solving for Q gives Qm = 21. Then, find the competitive quantity (Qc) where P = MC, which is 100 - 2Q = 16, solving for Q gives Qc = 42. The price at Qm from the demand curve is P = 100 - 2(21) = 58. The DWL is the area of the triangle with base (Qc - Qm) = 42 - 21 = 21 and height (P at Qc - MC) = 58 - 16 = 42. The area of this triangle is 0.5 * base * height = 0.5 * 21 * 42 = $441.

If the Inverse Demand Curve a Monopoly Faces Is P