The figure above shows the market supply and market demand for pizza
a) What is the efficient quantity of pizzas?
b) If 70,000 pizzas are produced, what area represents the deadweight loss?
c) Why does the deadweight loss in part (b) occur?
d) If 20,000 pizzas are produced, what area represents the deadweight loss?
e) Why does the deadweight loss in part (d) occur?
a) 40,000 pizzas is the efficient quantity.
b) If 70,000 pizzas are produced, the deadweight loss is area C.
c) The deadweight loss occurs because we are producing some pizzas, specifically pizzas 40,001 through 70,000, for which the marginal social cost is greater than the marginal social benefit.
d) If 20,000 pizzas are produced, the deadweight loss is area B.
e) The deadweight loss occurs because we are not producing some pizzas, namely pizzas 20,001 through 40,000, for which the marginal social benefit is greater than the marginal social cost.
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