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Principles of Microeconomics

7th Edition
N. Gregory Mankiw
ISBN: 9781305156050

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BuyFindarrow_forward

Principles of Microeconomics

7th Edition
N. Gregory Mankiw
ISBN: 9781305156050
Textbook Problem

The deadweight loss from monopoly arises because

a. the monopoly firm makes higher profits than a competitive firm would.

b. some potential consumers who forgo buying the good value it more than its marginal cost.

c. consumers who buy the good have to pay more than marginal cost, reducing their consumer surplus.

d. the monopoly firm chooses a quantity that fails to equate price and average revenue.

To determine
The causes of deadweight loss.

Explanation

Option (b):

Monopoly determines the price which allows the consumer to decide on the purchase of goods. If goods’ value is lesser than the marginal cost, then the consumer will purchase the goods. Under monopoly, there are potential consumers who skip the purchase of goods because the marginal cost of the goods is higher than the value of goods. Thus, option ‘b’ is correct.

Option (a):

The deadweight loss arises due to the decrease in total surplus...

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