Chapter #3: Welfare Economics - Agricultural and Resource ...
Chapter #3: Welfare Economics - Agricultural and Resource ...
Chapter #3: Welfare Economics - Agricultural and Resource ...
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<strong>Welfare</strong> under Monopoly<br />
A monopoly is the only seller in a market. The basic condition for a<br />
monopoly is below:<br />
Maximizes P(Q) Q − C(Q)<br />
Q<br />
P(Q) = Inverse dem<strong>and</strong>: price as a function of quantity<br />
C(Q) = quantity.<br />
Optimality occurs where:<br />
P + Q ∂P ∂C<br />
− = 0<br />
∂Q ∂Q<br />
MR(Q) − ML(Q) = 0<br />
MR = marginal revenue<br />
MC = marginal cost.<br />
Q C = quantity under competition P M = price under monopoly<br />
P c = price under competition Q M = quantity under monopoly.<br />
A monopoly produces too little <strong>and</strong> charges too much. <strong>Welfare</strong> loss<br />
under monopoly is ΔABC.<br />
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