Social Costs of Monopoly
demand shifts - will only change price
- quantity produced by monopoly still stays the same
- intersection of MR=MC stays the same
tax effect - increases price by less than tax in a competitive market
- in monopoly, price can sometimes rise higher than the tax
- MC' = MC + tax
- basically, the marginal cost shifts up by a constant
- demand
- marginal revenue
- marginal cost
- marginal cost plus tax
- p = price before tax
- p* = price after tax, increased by more than the tax
deadweight loss - occurs along w/ consumer surplus loss w/ change to monopoly
- normally in competitive market, price found at intersection of marginal cost and market demand
- price set higher than this in monopoly >> loss of consumer surplus
- less quantity produced >> deadweight loss
- price regulation can get rid of deadweight loss in a monopoly
- sets price minimum in competitive market, sets price maximum in a monopoly market
natural monopoly - has a much more efficient production than other firms
- makes it unprofitable for other firms to even continue production
- possible w/ large economies of scale
Subject:
Economics [1]
Subject X2:
Economics [1]