Suppose a profit-maximizing monopolist faces a constant marginal cost of $10, produces an output level of 100 units, and charges a price of $50. The socially efficient level of output is 200 units. Assume that the demand curve and marginal revenue curve are the typical downward-sloping straight lines. The monopoly deadweight loss equals $2,000.

Question

Quizplus · Accepted Answer

The deadweight loss in a monopoly is calculated as the area of the triangle formed between the socially efficient quantity and the monopolist's quantity, with the height being the difference between the price and marginal cost. Here, the base of the triangle is 100 units (200 - 100), and the height is $40 ($50 - $10), so the deadweight loss is 0.5 * 100 * 40 = $2,000.

Suppose a Profit-Maximizing Monopolist Faces a Constant Marginal Cost of $10