Practice question · Multiple choice
Monopoly deadweight loss is the triangle between demand and marginal cost over the units not produced. Why is that area a LOSS rather than a transfer?
Hints
- Ask who ends up with the value in the rectangle, and who with the triangle.
- A transfer has a recipient.
Show the answer
D. Because those units are simply not produced by anyone
Why
The rectangle changes hands; the triangle evaporates. Gains from trade that would have existed simply do not occur, which is why the loss is called dead.
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