Question

Our models predict that a monopoly imposes a deadweight loss because:

		there is a gain in profitability to firms that would have been in the industry had there been no monopoly.
		there is too much produced.
		consumers are denied output for which they are willing to pay more than the cost of producing it.
		monopolies will choose the productively efficient point but not the allocatively efficient point.

Answer 1

A monopoly creates a deadweight loss because it foregoes transaction with the consumer. Tha means a monopoly can produce more and sell more at a lower cost but they artificially keep the price higher and produce less to maintain its profitability. It holds excess capacity while production.

If a monopoly produces more he will still be earning a profit i.e. the price the consumer is willing to pay will be more than the cost price of the producing it.

The answer is "C". The consumer is denied output for which they are willing to pay more than the cost of producing it.