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Unformatted text preview: shown in the blue area below P FR. c. The deadweight loss is shown in the black area. 3a. Assume that before the deregulation, the electricity companies where operating at the socially optimal price (MC=D). Basically, at this price, the companies where operating as if they were in a perfectly competitive market. The deregulation will cause price to rise and output to fall as the companies shift from a perfectly competitive market for electricity production to a monopoly market. As one can see, the Marginal revenue (MR) has fallen lower from the demand curve and the companies become price makers; setting their price to where the point MC=MR meets the demand curve vertically. b. Consumer surplus for the profit maximizing monopoly is shown in the yellow shaded area above P M and producer surplus is shown in the blue shaded area below P M ....
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- Spring '11