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A-Level Economics · Monopoly (supernormal profit) diagram question

Compared with the competitive outcome at G, which area is the DEADWEIGHT WELFARE LOSS?

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The diagram

The answer

The triangle B C G. Units 3 to 5 are worth more to buyers (AR) than they cost to make (MC), and the monopolist refuses to make them — triangle BCG, pointing at the competitive outcome G. Between Qm = 3 and Qc = 5 the demand curve sits above MC: those trades are worth doing and do not happen. Triangle BCG points at G. Price too high, quantity too low, resources misallocated — market failure caused directly by market power.

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This is one of 6 questions on the monopoly (supernormal profit) diagram — every corner lettered, every wrong answer diagnosed.

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