Microeconomics · Interactive
Monopoly and the deadweight loss
A monopolist produces where marginal revenue meets marginal cost, not where price does. Move the curves and see exactly what that costs, and who pays.
DEADWEIGHT LOSS · 432
Demand (average revenue)Marginal revenueMarginal costMonopolyCompetitive
The maths, with your numbers
DemandP = a − bQP = 100 − 1.00Q
Marginal revenueMR = a − 2bQMR = 100 − 2.00Q
Marginal costMC = c + dQMC = 10 + 0.50Q
Competitive outputQc = (a − c) / (b + d)60.0
Monopoly outputQm = (a − c) / (2b + d)36.0
Deadweight loss½ (Pm − MCm)(Qc − Qm)432
Reading the diagram
Who gains, who loses
A
A transfer, not a loss
Buyers who still buy pay Pm instead of Pc. That money moves from them to the monopolist. It changes hands; it does not disappear.
B
Consumer surplus nobody gets
Buyers between Qm and Qc valued the good above its competitive price, but are priced out. Their surplus goes to no one.
C
Producer surplus nobody gets
Those units cost less to make than buyers would pay. Set marginal cost flat and C vanishes, leaving B as the whole loss.
Consumers
lose A + B
The monopolist
gains A − C
Society
loses B + C, the deadweight loss
Try it on real questions
UGC NET June 2024, Q91–95
Five questions set on this exact diagram: rectangle A, triangles B and C, and who loses what.
These are questions from the TestStop bank. A free account answers 10 a day, each with its worked solution; All-Access opens every set with no daily limit.
Read next
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