If the government regulates a monopoly's price below the socially efficient level, then
A)deadweight loss increases and there is a surplus output.
B)deadweight loss decreases and there is a shortage of output.
C)deadweight loss increases and there is a shortage of output.
D)deadweight loss decreases and there is a surplus.

Question

Quizplus · Accepted Answer

If the government regulates a monopoly's price below the socially efficient level, the monopoly will produce less output than it would if it could charge a higher price. This results in a shortage of output. In addition, because the price is below the socially efficient level, there is an increase in inefficiency or deadweight loss. Thus, prices below the socially efficient level lead to both a shortage of output and an increase in deadweight loss, which is captured in option C.

If the Government Regulates a Monopoly's Price Below the Socially