Tài liệu Microeconomics for MBAs 40 ppt

Chapter 12 Monopoly Power and Firm

Pricing Decisions

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consumer welfare that could be achieved by dissolving the monopoly and expanding

production from Qm to QC . This area helps explain consumers prefer QC and producers

prefer Qm . Figure 12.7(a) shows the additional benefits consumers would receive from

Qc – Qm units, the area under the demand curve, QmabQc. The additional money

consumers must pay producers for Qc – Qm units, shown by the area under the marginal

revenue curve, is a much smaller amount: only QmcdQc. That is, the additional benefits

of Qc – Qm units, exceed the cost to consumers by the shaded area abcd. Consumers

obviously gain from an increase in production.

FIGURE 12.7 The Costs and Benefits of Expanded Production

If the monopolist expands production from Qm to Qc

in part (a), consumers will receive additional benefits

equal to the area bounded by QmabQc

. They will pay an amount equal to the area QmcdQc

for those benefits,

leaving a net benefit equal to the vertically striped area abcd. To expand production, the monopoly must incur

additional production costs equal to the area QmcbQc

in part (b). It gains additional revenues equal to the area

QmcdQc

, leaving a net loss equal to the shaded area cbd. Thus expanded production helps the consumer but

hurts the monopolist.

Yet for virtually the same reason, the monopolistic firm is not interested in

providing Qc – Qm units. It must incur an additional cost equal to the area QmcdQc (part

(b)] , while it can expect to receive only QmcdQc in additional revenues. The extra cost

incurred by expanding production from Qm to Qc exceeds the additional revenue acquired

by the horizontally stripped area cbd. Thus an increase in production will reduce the

monopolistic firm’s profits (or increase its losses). Notice that consumers would gain

more from an increase in production than the monopolist would lose. The shaded area in

part (a) is larger than the shaded area in part (b). The difference is the triangular area

abc.