A welfare loss occurs when a monopolist chooses not to produce units of output that are of greater marginal value to consumers than the marginal cost of producing them.

Question

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A monopolist restricts output below the socially optimal level, causing a welfare loss by forgoing the production of units that consumers value more than the cost of producing them. This creates a deadweight loss and reduces overall economic efficiency.

A Welfare Loss Occurs When a Monopolist Chooses Not to Produce