Question

What is meant by the welfare loss of monopoly? Who bears this loss? Describe how price regulations may reduce or eliminate the welfare loss of monopoly.

Answer 1

1> Welfare loss od monopoly means the loss of the total social welfare compared to the most efficient perfect competition.

2> In case of a monopoly, the consumers bear the loss, even the producer surplus increases in a monopoly, thus the only bearer of the loss are the consumers.

3> If the government creates a price ceiling, then the monopoly will be obliged to sell it at that price, if it is done at the equilibrium price level, it will eliminate the welfare loss in monopoly.