Principles of Economics- Mankiw (5th) 317

Principles of Economics- Mankiw (5th) 317 - CHAPTER 15 M O...

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CHAPTER 15 MONOPOLY 327 QUICK QUIZ: Explain how a monopolist chooses the quantity of output to produce and the price to charge. THE WELFARE COST OF MONOPOLY Is monopoly a good way to organize a market? We have seen that a monopoly, in contrast to a competitive firm, charges a price above marginal cost. From the stand- point of consumers, this high price makes monopoly undesirable. At the same time, however, the monopoly is earning profit from charging this high price. From the standpoint of the owners of the firm, the high price makes monopoly very desirable. Is it possible that the benefits to the firm’s owners exceed the costs imposed on con- sumers, making monopoly desirable from the standpoint of society as a whole? We can answer this question using the type of analysis we first saw in Chapter 7. As in that chapter, we use total surplus as our measure of economic well-being. Recall that total surplus is the sum of consumer surplus and producer surplus.
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