Consider the monopoly in the figure below with price regulated at $2 per unit.Deadweight loss resulting from the unregulated monopoly price is _________ than the deadweight loss resulting from the regulated price.
A) greater
B) less
C) no different
D) There is insufficient information to determine the difference in the deadweight loss between the regulated and unregulated prices.

Question

Quizplus · Accepted Answer

The deadweight loss resulting from the unregulated monopoly price is greater than the deadweight loss resulting from the regulated price because in the unregulated case, the monopoly will choose a higher price and produce less output, resulting in a larger deadweight loss. The regulated price of $2 per unit results in a smaller deadweight loss because it forces the monopoly to produce a larger quantity of output.

Consider the Monopoly in the Figure Below with Price Regulated