AP Microeconomics Question of the Day

1. produces an output level where the price charged is greater than its marginal cost. (correct answer)
2. can earn positive economic profits both in the short run and the long run.
3. often fails to produce at the minimum point of its average total cost curve.
4. faces a downward-sloping demand curve, which causes marginal revenue to be negative.

Explanation: Deadweight loss represents a loss of total economic surplus due to inefficiency. Allocative efficiency occurs when resources are distributed such that the marginal benefit to society (represented by price) equals the marginal cost ($P = MC$). A profit-maximizing monopolist produces where $P > MR = MC$. This inequality ($P > MC$) indicates that society values the last unit produced more than it cost to make, and a deadweight loss arises because mutually beneficial trades do not occur.