Question

Lost Consumer Surplus Deadweight Loss SS FROM MONOPOLY le and triangles show changes producer surplus when moving ice and quantity, P, and Q, to a d quantity, P, and Q Because of sumers lose A + B and producer dweight loss is B+ C AR Qe P, and Q, to the monopoly price and quantity, P and Q Under monopoly, the price is higher and consumers buy less. Because of the higher price, those consumers who buy the good lose surplus of n amount given by rectangle A. Those consumers who do not buy theg price P, but who would buy at price P, also lose surplus-namely, an a given by triangle B. The total loss of consumer surplus is therefore A roducer, however, gains rectangle A by selling at the higher price but lose triangle C, the additional profit it would have earned by selling the price P. The total gain in producer surplus is therefore A- C. Subtracting loss of consumer surplus from the gain in producer surplus, wer Bven of surplus given by B + C. This is the deadweight loss from monopoly Poconsu if the monopolist's profits were taxed away and redistributed to the could be ers of its products, there would be an inefficiency because output e social lower than under conditions of competition. The deadweight loss is cost of this inefficiency see a net

Please mathematically explain the meaning of the line "additional profit it would have earned by selling Qc-Qm at price Pc" from the above diagram.

Answer 1

Given Data; Lost consumer surplus dead weight loss from monopoly.

• At price Pc the quantity produced is Qc and Pm the quantity produced is Qm, which is lesser than what was produced previously, which means at price Pc the consumer lose the amount of triangle B. Now on a greater price the producer sells amount rectangle A but on Pm the quantity produced is Qm so he will be unable to earn the extra profit that is Qc - Qm. Thus total gain in producer surplus is A - C.
• Producer surplus is when the producer is making profit selling their goods or service in different possible quantities.