2. True or false? Explain your answer.
Society’s welfare is lower under monopoly because some consumer surplus is transformed into profit for the monopolist.
False. As can be seen from Figure 8-8, panel (b), the inefficiency arises from the fact that some of the consumer surplus is transformed into deadweight loss (the yellow area), not that it is transformed into profit (the green area).
A monopolist causes inefficiency because there are consumers who are willing to pay a price greater than or equal to marginal cost but less than the monopoly price.
True. If a monopolist sold to all customers who have a valuation greater than or equal to marginal cost, all mutually beneficial transactions would occur and there would be no deadweight loss.