The figure below shows the demand curve, marginal revenue curve, marginal cost curve and average total cost curve for a monopolist. At this monopolist's profit-maximizing level of output, the deadweight loss to society equals:

Question

The figure below shows the demand curve, marginal revenue curve, marginal cost curve and average total cost curve for a monopolist.  At this monopolist's profit-maximizing level of output, the deadweight loss to society equals:

Quizplus · Accepted Answer

The profit-maximizing level of output for the monopolist is where marginal revenue (MR) equals marginal cost (MC) and the monopolist produces at that level of output where the marginal revenue curve intersects the marginal cost curve. In the given diagram, this occurs at output level Q1.
 
The monopolist sets the price at the highest point on the demand curve that corresponds to the quantity sold, which is P1.

The monopolist's profit is the difference between the price (P1) and the average total cost (ATC) at Q1, multiplied by the quantity sold.

The deadweight loss to society is the difference between the total surplus in a perfectly competitive market and the total surplus in the monopolist's market. The area of deadweight loss is represented by the triangle formed by the demand curve, the marginal cost curve, and the profit-maximizing quantity.

In this case, deadweight loss equals the shaded triangle ABE, which is $24 per day. Therefore, the correct answer choice is C) $24 per day.

The Figure Below Shows the Demand Curve, Marginal Revenue Curve