Determine monetary value of the efficiency loss

Reference no: EM1369876

Here's what I think I know about the answer: to get the $ value of DWL you have to take the area of the aggregate surplus under perfect competition and substract the area of the aggregate surplus under monopoly (helps to make a little graph.) The funny thing is, my main problem is I don't know the geometry necessary to do that. There may be another method, I'll leave it to you.

Here's the problem:

I am considering giving a patent for a new drug. The public demand is given by: P = 120 - 10Q, where Q is quantity of the drug and P is price. If the marginal cost of production is given by MC = 2Q, what will be the monetary value of the efficiency loss of granting the company monopoly power (meaning a patent)?

Remember that a marginal revenue function can be derived from a linear demand function by doubling the slope of that function.

Reference no: EM1369876

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