Market Diagram

The following questions refer to the accompanying market diagram. PC and QC are the equilibrium price and quantity if the firm behaves competitively, and PM and QM are the equilibrium price and quantity if the firm is a simple monopoly.

-Refer to the market diagram.Relative to the surplus achieved under perfect competition,how much surplus is lost (deadweight loss)when there is a monopoly?
A) E
B) H
C) E + H
D) D + G + E + H

Question

Market Diagram

The following questions refer to the accompanying market diagram. PC and QC are the equilibrium price and quantity if the firm behaves competitively, and PM and QM are the equilibrium price and quantity if the firm is a simple monopoly.

-Refer to the market diagram.Relative to the surplus achieved under perfect competition,how much surplus is lost (deadweight loss)when there is a monopoly?
A) E 
B) H 
C) E + H 
D) D + G + E + H

Quizplus · Accepted Answer

The deadweight loss is the area of the triangle formed by points E, F, and H. Under perfect competition, there is no deadweight loss and the entire area between the supply and demand curves (including consumer and producer surplus) is achieved. However, with a monopoly, the deadweight loss occurs as the monopolist restricts output and charges a higher price, resulting in a decrease in consumer surplus and a decrease in producer surplus. Therefore, the best answer is C, as it includes the area of deadweight loss (E + H) relative to perfect competition. Answers A, B, and D are incorrect as they do not account for the full extent of the deadweight loss.

Market Diagram The Following Questions Refer to the Accompanying Market Diagram. PC