Suppose that the city has given Jorge a monopoly selling baseball caps at the lo

Question

Suppose that the city has given Jorge a monopoly selling baseball caps at the local mirror league stadium. Use the graph shown at right to answer the questions. Jorge will produce baseball caps (Enter your response as a whole number) Jorge will charge per cap (Enter your response as a whole number) He will earn $ is profit(Enter your response as a whole number.) Review the definition of allocative efficiency. If Jorge produced at the allocatively efficient level of output he would produce baseball caps (Enter your response as a whole number) Assume that the marginal cost erase is linear (a straight line) between the two relevant points. How much deadwright loss did Jorge create by acting the monopolist rather than a perfect competitor? (Enter your response as a whole number).

Explanation / Answer

In a perfectly competitive market, the equilibrium point attains the most efficient allocation of resources within the market. This would dimply that there are no additional gains to be had from further production and trade of goods between buyers and seller. However in less than perfect competitive situations, like monopoly, all gain from trade are not completely exhausted. This is called the deadweight loss in economics.

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