Consider the monopoly in the figure below with price regulated at $20 per unit.The deadweight loss under the regulated price is:
A) $150.
B) $1,350.
C) $2,300.
D) There is insufficient information to compute the deadweight loss at the regulated price.

Question

Quizplus · Accepted Answer

The deadweight loss is the triangular area between the supply and demand curves, from the quantity produced under perfect competition (where price equals marginal cost) to the quantity produced under monopoly (where price is set above marginal cost). In this case, the competitive price is $14 (where supply equals demand) and the monopoly price is $20. The quantity produced under each scenario is 8 and 5, respectively. Therefore, the deadweight loss is:
(1/2) x (20-14) x (8-5) = $18 per unit
The total deadweight loss is $18 x 75 = $1,350.

Consider the Monopoly in the Figure Below with Price Regulated