Question

Can a monopolist charge whatever it wants for its product? Why or why not?

Why is a monopoly associated with deadweight loss?

What is the difference between normal profit and economic profit?

Answer 1

1) Monopolist does not charge any amount they want to charge. Rather they opearte at a point when MR = MC.to maximize their level of profit. You can see in the dagram below that at profit maximizing point, output is Q* and price is P*.

2) Deadweight loss occurs because it does not operate at socially efficient point which occurs when MC = AR. More units are produced at less price when economy operates at MC = AR while monopoly charge comparatively higher price and produce less units which result in social loss or deadweight loss.

3) Normal profit occurs when total revenue = total cost while economic profit occurs when total revenue > total cost.