ECON 1050 Chapter 13: Economics-1 (1) (dragged) 8
17 Sep 2016
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Figure 13. 10 shows that the perfect price discriminating monopoly increases in output until the price of the last trip equals marginal cost. Producer surplus is maximized when the lowest fare is and 16,000 trips are bought. The monopoly makes the maximum possible profit. The more perfectly a monopoly can price discriminate, the closer its output is to the competitive output (p = mc) and the more efficient is the outcome. But this outcome differs from the outcome of perfect competition in two ways: the monopoly captures the entire consumer surplus, the increase in economic profit attracts even more rent-seeking activity that leads to inefficiency. Regulation: rules administrated by a government agency to influence prices, quantities, entry, and other aspects of economic activity. Two theories about how regulation works are social interest theory and capture theory. Social interest theory: is that the political and regulatory process relentlessly seeks out inefficiency and regulates to eliminate deadweight loss.
