Firms with homogeneous resources and capabilities that cooperate to reduce competition below a perfect competition level can generate economic profits, but in doing so reduce social welfare in a phenomenon called ________ loss.

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05-03-2020
Social Studies

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Firms with homogeneous resources and capabilities that cooperate to reduce competition below a perfect competition level can generate economic profits, but in doing so reduce social welfare in a phenomenon called ________ loss.

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imustapha180 imustapha180 · Answer 1 · 2020-03-09T03:15:07+01:00

Answer: Deadweight loss

Explanation: Deadweight loss which is also referred to as excess burden, occurs when supply and demand are out of equilibrium. Causes of deadweight are price ceiling, price floor and Taxes.

The Deadweight loss can be calculated as

Deadweight Loss = 0. 5 * (P2 - P1) * (Q1 - Q2).

Where

P1: The original price of the product

P2: The new price of the product after the price ceiling.

Q1: The original quantity demanded

Q2: The new quantity demanded of the product after the price ceiling.

fichoh fichoh · Answer 2 · 2020-03-09T03:16:37+01:00

Answer:Deadweight loss

Explanation: Deadweight loss refers to a situation or scenario which highlights economic inefficiency. It is commonly associated with inadequate allocation of resources such that optimal level of production cannot be reached and as such equilibrium cannot be attained between the market forces of demand and supply.

Deadweight loss could result due to monopoly or reduction in competition below certain levels as highlighted above, these move would lead to increased economic profit generation but could could result in Deadweight loss. Other causes may include tax or subsidy and artificial scarcity.