Asked by Abigail Dupont on Jun 01, 2024
Verified
(Figure: PPV) Use Figure: PPV.The figure shows the demand and marginal revenue for a pay-per-view football game on cable TV.Assume that the marginal cost and average cost are a constant $20.If the cable company is a monopoly,how much deadweight loss is there when the monopolist maximizes profit?
A) $0
B) $20
C) $80
D) $160
Deadweight Loss
The decrease in economic effectiveness due to the inability to achieve or the unachievable status of market equilibrium for a specific good or service.
Marginal Cost
An elevation in the cumulative expense resulting from manufacturing one more unit of a product or service.
- Ascertain the consumer surplus, producer surplus, and deadweight loss in competitive versus monopoly markets.
Verified Answer
FE
Farouk ElabbassiJun 07, 2024
Final Answer :
C
Explanation :
Deadweight loss occurs when the price charged by the monopolist is higher than the price that would have existed under perfect competition. In the given figure, the monopolist maximizes profit by setting the quantity where MR=MC, which is Q=30. The price charged is $70, which is higher than the marginal cost of $20. The socially optimal price would have been $50, which is where the demand curve intersects the marginal cost curve. Therefore, the deadweight loss is the triangle formed by the demand curve, the marginal cost curve, and the price line, which is ($70-$50) x (30-20) / 2 = $80.
Learning Objectives
- Ascertain the consumer surplus, producer surplus, and deadweight loss in competitive versus monopoly markets.