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 raises prices above the competitive level, leading to a decrease in consumer surplus. This happens because the monopolist does not produce output at a level where marginal benefit equals marginal cost. As a result, there is a reduction in overall welfare in the economy, which represents a deadweight loss.

Why Does a Monopoly Cause a Deadweight Loss