Answer to Question #157843 in Macroeconomics for Paul

Question #157843

With the aid of a diagram, show the deadweight cost of a monopoly. Explain

the policy implications for government.


1
Expert's answer
2021-01-23T15:50:59-0500


Here, "D" is the demand curve, "S_1" is the supply curve (in case of competitive market), "S_2" is the supply curve (in case of monopoly). The shaded area in the diagram is the deadweight loss (or the deadweight cost) of the monopoly. In order to remove the deadweight cost, the government can apply the price ceiling. If there is a binding price floor closed to equilibrium price at competitive market, it will remove the deadweight cost and bring the market to a competitive equilibrium.


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Comments

Assignment Expert
01.02.21, 02:44

Dear Client, please use panel for submitting new questions.

Paul O'Neill
28.01.21, 15:47

Hi, I am not sure what this means exactly If there is a binding price floor closed to (Closed to ?) equilibrium price at competitive market, it will remove the deadweight cost (how does it do this?) and bring the market to a competitive equilibrium. Thanks, Paul

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