Question

how does a monopolist’s quantity of input compare to the quantity of output that maximizes total surplus? how does this difference relate to the concept of deadweight loss? please explain in detail

Answer 1

Answer - The quantity that maximises the total welfare is obtained at the level of MR = MC. This is the profit maximising condition. However , for the monopoly , if the output will be produced at the level of MR = MC , the profits will be normal and same as the perfect competition. But monopoly chooses to produce at the output below the profit maximising level. This is done in order to charge the higher price by limiting supply.

The charging of the higher price and lower output production than the profit maximising level reduces the consumer surplus and thus creates the deadweight loss in market.