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Graphically depict the deadweight loss caused by a monopoly. Compare this with the deadweight loss from...

Graphically depict the deadweight loss caused by a monopoly. Compare this with the deadweight loss from taxation.   

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Answer #1

Consider the diagram below-

The shaded area represents the deadweight loss of a monopoly. The profit maximising monopolist will choose the produce Q units of output at price P. The marginal cost is MC0. This is similar to the deadweight loss from taxation when the taxes forces a wedge between the market price and marginal cost.

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