Question

3. Draw the dead weight loss graph that compares the welfare loss of monopoly to the o ptimum P C ) perfect competition. Be sure to shade in and label the areas corresponding to come OWL Producer WL, and the transfer of consumer surplus to producer surplus 4. Explain why economists regard consumer DWL as inefficient.

Answer 1

ML Social optimal level of equilibrium is where P = MC se, at e. At paint @ consumer surplus AAP,e,. and equilibrium price P, and output is q.. In monopoly market, equilibrium is at B B when MR=Me happens and equilibrium price lo and autput yo. So, price increases and output decreaus. in the meeneepoly market. As price increases loss of consumer sniples is po Aep, and transfer of consumer surplus to producer suplus. is P.ADP, and ADC is potential loss consumes, due to quantity decrease, polentral loss in producer surphers is ded, so, Potal deadweight loss is ACB. 4 Dat Deadweight lose is inefficient for consumer Dewl becaume ata of price rise, ADC is the loss in consumer snaphus and this loss is polentral loss and can heat be tranfeed to producer. B o some consumus Just left the market due to high price , So, & Branconists call it a loss,