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Which of the following areas represents the consumer surplus from this profit-maximizing monopolist?

a. ABE
b. BCFE
c. EFG
d. ACG

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User Gimby
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1 Answer

4 votes

The consumer surplus for a profit-maximizing monopolist can be represented by the difference between the willingness to pay (WTP) of a consumer and the price charged by the monopolist. The following areas represent the consumer surplus from a profit-maximizing monopolist:Area A represents the total amount that consumers are willing to pay for the monopolist's product. Area B represents the revenue earned by the monopolist for selling the product at a given price. Area C represents the producer surplus, which is the profit that the monopolist earns. Area D represents the deadweight loss or the loss of social welfare due to the monopoly pricing power. Area E represents the consumer surplus, which is the benefit that consumers receive by purchasing the product at a price lower than their WTP. Therefore, area E represents the consumer surplus from this profit-maximizing monopolist.The consumer surplus is a measure of the welfare that consumers derive from consuming a good or service. It is the difference between the amount that consumers are willing to pay for the good or service and the actual price they pay. The consumer surplus is an important concept in economics because it helps to measure the efficiency of markets.

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User Onthemoon
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