AP Microeconomics 6.1: Inefficient Allocations and Deadweight Loss

Measure the deadweight loss created when market output differs from the efficient quantity and explain why imperfect markets misallocate resources.

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NCHart is a corporation that has developed and patented a new drug to treat heart disease. There are no substitutes for this drug, giving NCHart a monopoly.

Instead of maximizing profit, suppose NCHart considers providing the new drug to as many patients as possible as long as it can generate enough revenue to cover its total costs.

At $\mathrm{Q}_{\mathrm{Z}}$ from part (c)(i), is there a deadweight loss? Explain.

State there is a deadweight loss at $\mathrm{Q}_{\mathrm{z}}$ and explain that P (or D)<MC, as shown.

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Note: Deadweight loss will exist at $\mathrm{Q}_{\mathrm{z}}$ if the demand is drawn such that the quantity at

which D=ATC is less than the quantity at which D=MC, because P (or D)>MC.

Note: Deadweight loss will NOT exist at $\mathrm{Q}_{\mathrm{z}}$ if the demand is drawn such that the quantity

at which D=ATC is equal to the quantity at which D=MC, because P (or D )=MC.

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POL-2.C—a. Explain equilibrium allocations in imperfect markets relative to efficient allocations (using graphs where appropriate) and why… question 1