The economic inefficiency of a monopolist can be measured by the:

• A. deadweight loss created due to reduced output compared to perfect competition
• B. consumer surplus in the monopoly market
• C. difference between marginal cost and average total cost
• D. total revenue earned by the monopolist

Answer: (A)

Verified step by step guidance

1. Understand that economic inefficiency in a monopoly arises because the monopolist produces less output than what would be produced in a perfectly competitive market, leading to a loss of total welfare.
2. Recall that in perfect competition, the equilibrium output is where price equals marginal cost (P = MC), maximizing total surplus (consumer plus producer surplus).
3. Recognize that a monopolist restricts output to maximize profit, producing where marginal revenue equals marginal cost (MR = MC), which results in a higher price and lower quantity than in perfect competition.
4. Identify that this reduction in output causes a loss of potential gains from trade, which is represented by the deadweight loss — the value of trades that do not occur due to the monopolist's output restriction.
5. Conclude that the economic inefficiency of a monopolist is best measured by the deadweight loss created due to reduced output compared to perfect competition, rather than by consumer surplus, differences in costs, or total revenue.