Why market power leads to a deadweight loss

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1. What is the relationship between a monopolist's demand curve and the market demand curve?

What is the relationship between a monopolist's demand curve and the marginal revenue curve?

2. Draw a graph that shows a monopolist earning a profit. Be sure your graph includes the monopolist's demand, marginal revenue, average total cost, and marginal cost curves. Also be sure to indicate the profit-maximizing level of output and price.

3. Explain why market power leads to a deadweight loss. Is the total deadweight loss from market power for the economy large or small?

A student argues, "If a monopolist finds a way of producing a good at lower cost, he will not lower his price. Because he is a monopolist, he will keep the price and the quantity the same and just increase his profit." Do you agree?

Reference no: EM13184791

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