Table 15-5

-Suppose that a monopolist produces good A.The profit-maximizing quantity is 40 units,the profit-maximizing price is $160,and the marginal cost of the 40th unit is $120.If good A were produced in a perfectly competitive market,the equilibrium quantity would be 50,and the equilibrium price would be $150.What is the value of the deadweight loss created by the monopolist?
A) $40
B) $100
C) $200
D) $400

Question

Table 15-5
 
-Suppose that a monopolist produces good A.The profit-maximizing quantity is 40 units,the profit-maximizing price is $160,and the marginal cost of the 40th unit is $120.If good A were produced in a perfectly competitive market,the equilibrium quantity would be 50,and the equilibrium price would be $150.What is the value of the deadweight loss created by the monopolist?
A) $40 
B) $100 
C) $200 
D) $400

Quizplus · Accepted Answer

The deadweight loss in a monopoly is the area between the demand curve and the marginal cost curve, from the monopolist's output level to the perfectly competitive output level. In this case, the monopolist produces 40 units at a price of $160, while in perfect competition, the equilibrium quantity is 50 at a price of $150.

The area of the deadweight loss triangle is:
(1/2) x (50-40) x ($150-$120) = $200

Therefore, the value of deadweight loss created by the monopolist is $200.

Table 15-5 -Suppose That a Monopolist Produces Good A.The Profit-Maximizing Quantity Is