Suppose the figure below shows the demand curve, marginal revenue curve and marginal cost curve for a monopolist. At the monopolist's profit-maximizing level of output, deadweight loss equals the area:

Question

Suppose the figure below shows the demand curve, marginal revenue curve and marginal cost curve for a monopolist.  At the monopolist's profit-maximizing level of output, deadweight loss equals the area:

Quizplus · Accepted Answer

The monopolist's profit-maximizing level of output is where marginal revenue (MR) equals marginal cost (MC). This is shown as output level Q* in the graph. The monopolist will charge the price P* at this level of output, which is found on the demand curve directly above Q*.

The deadweight loss is the loss of social welfare that is caused by the monopolist restricting output and charging a higher price than the competitive equilibrium. It is the area between the demand curve and the marginal cost curve, above the monopolist's profit-maximizing quantity. In this graph, the deadweight loss is the triangle JLN.

Therefore, the correct answer is C) JLN.

Suppose the Figure Below Shows the Demand Curve, Marginal Revenue