{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

# Monopoly - MONOPOLY(continued Deadweight Loss of Monopoly A...

This preview shows pages 1–8. Sign up to view the full content.

MONOPOLY (continued)

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
Deadweight Loss of Monopoly A monopoly firms sets MR=MC despite the fact that P exceeds MC. This profit-maximizing solution creates a welfare loss. Definition The deadweight loss of monopoly is the value of output to consumers minus factor cost between monopoly output where MR=MC and the output where P=MC.
Figure 8 illustrates deadweight loss. P=24-Q is inverse demand, MR=24-2Q and MC=2Q. Output under monopoly is Q m =6, while output where P=MC is Q c =8. At Q m P=18, MC=12. The gray triangle is the deadweight loss.

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
Taxation and the Deadweight Loss of Monopoly

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
Natural Monopoly Natural monopoly is brought about n industries by production processes with increasing returns to scale. One cause of increasing returns is start-up costs. The next figure provides an example, where MC=AC=10 and start-up costs equal 60. This is the case of “L-shaped” costs again. Such a setting contributes to increasing returns—as shown by falling AC. A natural monopoly is an industry in which maximum economic efficiency is obtained when the firm produces and distributes all of the commodity in that industry – that is, when the industry is a pure monopoly.
Natural Monopoly

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### What students are saying

• As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

Kiran Temple University Fox School of Business ‘17, Course Hero Intern

• I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

Dana University of Pennsylvania ‘17, Course Hero Intern

• The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

Jill Tulane University ‘16, Course Hero Intern