Question

1. “A monopolist underproduces and overcharges for its product, thereby imposing costs on the rest of society.” Illustrate this statement graphically, and provide a verbal explanation of no more than five sentences.

Answer 1

***kindly rate ***

Ans) Monopoly is when there is a single seller selling unique product. A profit maximising monopolist produces the quantity where MR and MC curve intersect and then uses demand curve to determine the price.

A monopolist charges more price than a Perfectly competitive market and also produces less quantity than socially optimal. This leads to deadweightloss or inefficiency in the market. The deadweightloss or social cost is created because many potential buyers who were ready to pay upto the marginal cost are not served.

The above graph shows a comparison between perfect competition and monopoly. A monopolist is producing less quantity and charging more price. Hence, creating deadweightloss.