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 $40.If the cable company is a single-price monopoly and maximizes profit,deadweight loss will be:
A)$0.
B)$45.
C)$60.
D)$90.

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 $40.If the cable company is a single-price monopoly and maximizes profit,deadweight loss will be:
A)$0. 
B)$45. 
C)$60. 
D)$90.

Quizplus · Accepted Answer

To maximize profit, the single-price monopoly will produce where marginal revenue equals marginal cost. In this case, that point is where Q = 150. At that quantity, the price is $70 and the average cost is $40, resulting in a profit of ($70-$40) x 150 = $4,500.

The deadweight loss is the triangle between the demand curve and the marginal cost curve, from Q = 150 to Q = 180. That area is (1/2) x (70-40) x (180-150) = $600. Therefore, the deadweight loss is $600, or choice C.

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