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Question: Deadweight Loss is the amount of surplus that a market fails to produce because it did not achiev...

Show transcribed image text Deadweight Loss is the amount of surplus that a market fails to produce because it did not achieve the efficient outcome. The "efficient" outcome is the one with the greatest possible "social welfare", the sum of producer surplus and consumer surplus. If a particular market with linear demand and constant MC (as in the illustration) has an efficient outcome with a price of $5 and a quantity of 120, but the monopolist raises prices to $15 and quantity falls to 70, then how much is the deadweight loss? In this example, you merely have to calculate the area of a right triangle. Label the points at the vertices if you are unsure. The area of a triangle is .5 *(base) *(height) $625 $375 $125 $500 $250

Deadweight Loss is the amount of surplus that a market fails to produce because it did not achieve the efficient outcome. The "efficient" outcome is the one with the greatest possible "social welfare", the sum of producer surplus and consumer surplus. If a particular market with linear demand and constant MC (as in the illustration) has an efficient outcome with a price of $5 and a quantity of 120, but the monopolist raises prices to $15 and quantity falls to 70, then how much is the deadweight loss? In this example, you merely have to calculate the area of a right triangle. Label the points at the vertices if you are unsure. The area of a triangle is .5 *(base) *(height) $625 $375 $125 $500 $250