Question

Explain why market power leads to deadweight loss. Firms with market power create deadweight loss because they A. charge a price that is greater than marginal cost to maximize profits. B. produce where marginal revenue is greater than marginal cost to maximize profits. C. produce more than a perfectly competitive industry would to maximize profits. D. charge a price that is less than marginal cost to maximize profits. E. charge a price that is equal to marginal cost to maximize economic surplus. The total deadweight loss from market power for the economy is ________ small large .

Answer 1

Answer:

A) Charge a price that is greater than marginal cost to maximize profits.

Explanation:

The more market power a company has, the more it will tend to act like a monopoly. For example, Microsoft is not considered a monopoly because it is the only software company in the world, but because its market power in the PC business is so large that it dominates the industry.