BIOCH498 Lecture Notes - Lecture 8: Arbitrage, Monopolistic Competition, Allocative Efficiency
13 Jun 2015
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P > mc, so: mc < mb. Monopolistic competitor d < elastic than perfect competitor. Mono comp d > elastic than monpolist. Best of both worlds: deadweight loss, loss in benefits resulting from the monopoly producing less than the efficient amount, actual waste in the monopoly, perfect competition conditions qc, pc (mc = mr) i. ii. Producer surplus = blue rectangle: monopoly conditions qm, pm i. Competition act (1986) control behavior: regulate the price. Force the monopolist to charge competitive price and produce the competitive quantity (dwl = 0) ii. Profit problem - force the monopolist into economic loss. Information problem - regulator (government) does not know mc. Monopolists have an incentive to misrepresent mc iii. Force the monopolist to change the price where atc intersects demand and produce the corresponding quantity. Qf, pf = equilibrium at intersection between d and atc. Different consumers are charged different prices but price differences cannot be explained by differences in mc.
