Taking competitive rent seeking activity into account,the social cost of monopoly is equal to the
A)deadweight loss from monopoly.
B)monopoly's producer surplus.
C)deadweight loss plus the monopoly's producer surplus.
D)deadweight loss minus the monopoly's producer surplus.
E)consumer surplus lost plus producer surplus lost.

Question

Quizplus · Accepted Answer

When considering competitive rent-seeking activity, the social cost of monopoly includes not only the deadweight loss (which is the efficiency loss due to the monopoly pricing above marginal cost) but also the resources expended by the monopoly to maintain its monopoly status (e.g., lobbying for favorable regulations, legal costs to enforce patents, etc.). These activities represent a reallocation of resources that could have been used more productively elsewhere in the economy. Therefore, the correct answer is the sum of the deadweight loss and the monopoly's producer surplus, as the producer surplus includes the benefits the monopoly gains at the expense of consumer surplus and the additional costs of maintaining its monopoly power.

Taking Competitive Rent Seeking Activity into Account,the Social Cost of Monopoly