Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Deadweight loss decreases as quantity supplied increases
B
Deadweight loss remains constant regardless of quantity supplied
C
Deadweight loss increases as quantity supplied decreases
D
Deadweight loss is unrelated to quantity supplied
Understanding the Answer
Let's break down why this is correct
Answer
In a monopoly market, a single seller controls the entire supply of a product, which allows them to set prices higher than in competitive markets. When a monopolist maximizes profit, they produce less quantity than what would be supplied in a competitive market. This reduced quantity leads to deadweight loss, which is the loss of economic efficiency that occurs when the quantity traded is less than the optimal level. For example, if a monopoly sells 100 units instead of the 150 units that would be sold in a competitive market, the lost transactions represent the deadweight loss, as some consumers who would have bought the product at a lower price are unable to do so. Thus, the monopolist's profit-maximizing behavior creates a gap between consumer demand and actual supply, resulting in fewer total benefits for society.
Detailed Explanation
When a monopolist reduces the quantity supplied, fewer people can buy the product. Other options are incorrect because Some might think that more supply always helps; This choice suggests that deadweight loss doesn't change.
Key Concepts
Monopoly
Deadweight Loss
Quantity Supplied
Topic
Profit Maximization in Monopolies
Difficulty
hard level question
Cognitive Level
understand
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