Use the following to answer question:
Figure: PPV
-(Figure: PPV)Use Figure: PPV.The figure shows the demand and marginal revenue for a pay-per-view football game on cable TV.Assume that the marginal cost and average cost are a constant $20.If the cable company is a monopoly,how much deadweight loss is there when the monopolist maximizes profit?
A)$0
B)$20
C)$80
D)$160

Question

Use the following to answer question:
Figure: PPV 
-(Figure: PPV)Use Figure: PPV.The figure shows the demand and marginal revenue for a pay-per-view football game on cable TV.Assume that the marginal cost and average cost are a constant $20.If the cable company is a monopoly,how much deadweight loss is there when the monopolist maximizes profit?
A)$0 
B)$20 
C)$80 
D)$160

Quizplus · Accepted Answer

Deadweight loss occurs when the price charged by the monopolist is higher than the price that would have existed under perfect competition. In the given figure, the monopolist maximizes profit by setting the quantity where MR=MC, which is Q=30. The price charged is $70, which is higher than the marginal cost of $20. The socially optimal price would have been $50, which is where the demand curve intersects the marginal cost curve. Therefore, the deadweight loss is the triangle formed by the demand curve, the marginal cost curve, and the price line, which is ($70-$50) x (30-20) / 2 = $80.

Use the Following to Answer Question