Why Does a Monopoly Cause a Deadweight Loss

question 97

Multiple Choice

Why does a monopoly cause a deadweight loss?

• A)Because it does not produce some output for which marginal benefit exceeds marginal cost
• B)Because it appropriates a portion of consumer surplus for itself
• C)Because it increases producer surplus at the expense of consumer surplus
• D)Because it does not produce some output for which demand exceeds supply

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Definitions:

Goodwill

An intangible asset that arises when a company acquires another for a price higher than the fair value of its net identifiable assets.

Fair Values

The monetary amount expected from selling an asset or required to cover a liability, in a well-organized deal among market stakeholders, at the time of assessment.

Control

The power to govern the financial and operating policies of an organization so as to obtain benefits from its activities.

Investee

A company or entity in which an investor holds an interest, typically through ownership of shares.