ECON 1B03 Lecture Notes - Lecture 10: Deadweight Loss

• School: McMaster University
• Department: Economics
• Course: ECON 1B03
• Professor: Hannah Holmes

Document Summary

Recall: a competitive equilibrium maximizes cs and ps and society"s welfare is maximized. The competitive outcome is the socially efficient level, q. The monopolist produces less than the socially efficient quantity of output and charges a higher price for it. This means there will be a deadweight loss in total surplus in the market. Now assume that a monopoly serves the market and it"s as big as all the small pc firms combined. So, the monopoly"s mc is the same as the pc market supply curve. Suppose we are given the following information about a monopoly makret: To get p, substitute q=6 into the demand equation: This is easier if we graph the situation first. We can omit the atc curve to keep the diagram uncluttered. Need to find p at mc = d. Substitute q=10. 5 into either demand equation or mc equation: Mc = 8 + 10. 5 = 18. 5 = p in competition.