The deadweight loss that arises from a monopoly is a consequence of the fact that the monopoly
A)quantity is lower than the socially-optimal quantity.
B)price equals marginal revenue.
C)price is the same as average revenue.
D)earns positive profits.

Question

Quizplus · Accepted Answer

A monopoly restricts output and raises price above the competitive level, resulting in a quantity that is lower than the socially-optimal quantity. As a result, some potential consumers who value the product more than its production cost are forced to go without, which leads to a deadweight loss in the economy. Option B is incorrect because although the price equals marginal revenue for a monopolist, it does not contribute to deadweight loss. Option C is also incorrect because the fact that a monopoly's price is equal to average revenue is not relevant to the discussion of deadweight loss. Option D is incorrect because although a monopoly earns positive profits, it is not directly related to the deadweight loss that arises from a monopoly.

The Deadweight Loss That Arises from a Monopoly Is a Consequence