Consider a Monopolist with a Private MC of $20 Per

question 4

Multiple Choice

Consider a monopolist with a private MC of $20 per unit who faces a demand curve of P = 100 - q.There is also a negative consumption externality in the market of $40 per unit.The government successively introduces competition into the supply side of the market, so now instead of a monopolist there are many price-taking firms.Which statement is true?

• A)The government intervention increases the DWL in the market from 0 to $800.
• B)The government intervention in the market decreases the DWL from $800 to $0.
• C)The government intervention reduces but does not eliminate DWL in the market.
• D)The government intervention increases DWL from $0 to $1600.
• E)None of the above.

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