Question

⑤ndustrialo x D Industrial 0 × D The Econon × Industrial Or X Course Hon × 9781315510538.pdf Welfare Comparison 69 Cost and price dollars per unit) PM MCM AC Increase in costs due to X-inefficiency Increase in deadweight loss due to X-inefficiency MCPc ACPC PC Demand Quantity QM MR FIGURE 3.10 Welfare Effects of Increased Costs Due to Monopoly If monopolization of an industry raises costs, the deadweight loss is larger because the mono- poly restricts output further. In addition, the costs of producing the monopoly level of output are higher cost curve decreases significantly as the quantity of output it produces increases, then it nt to have outrut nenduced hu manu cmall firme In the axineme cace 8.pdf DOLL

What should be fixed in this graph?

Answer 1

There are a couple of things wrong with this graph.

a) PM will be the price of the monopoly not the middle part. A monopoly will produce at the point where the MR and the MC are equal .That is Qm and the price will be decide at the demand curve for the given quantity. So, increase the price and grey area will increases upto the price.

b) Dead weight loss will increase. The dark blue area will also be part of the dead weight loss.

Cost and price (dollars per unit) MCM ACM Increase in Increase in costs due to X-inefficiency deadweight loss due to X-inefficiency MCpc ACpC PPc Demand Quantity OpC OM MR