Why does rent-seeking behavior lead to deadweight ...

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Why does rent-seeking behavior lead to deadweight loss?

Question 2

Identify the correct statement.
 a. A monopolist's pricing decision is limited by the demand for its product.
  b. A monopolist is able to choose any price and quantity combination that it desires.
  c. A monopolist can increase its profits by increasing price if the demand for its good is relatively elastic.
  d. A monopolist does not suffer losses even in the short run.
  e. A monopolist is not able to reap positive profits in the long run.

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Answer to Question 1

A monopoly firm is insulated from direct competition, but there may still be a competition to obtain the monopoly, a process known as rent-seeking. For instance, cable television providers compete for monopoly franchises to serve a city, but this competition is costly. Prospective providers often hire lobbyists, lawyers, and economists to convince the city's government that they are better suited to run the system than rival applicants. Used for this purpose, these resources are unavailable to produce other goods and services that consumers value. This leads to a deadweight loss.

Answer to Question 2

a

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