a. If the monopolist charges its single profit-maximizing
price, show what areas are consumer surplus and
producer surplus.
b. Now suppose the industry is perfectly competitive and
the industry supply curve is given by the MC curve. What
areas would be consumer and producer surplus in this
case?
c. Use the concept of surplus to explain the economic
argument against monopoly and in favour of competition.
d. Consider again the situation of monopoly, but now
assume the firm can perfectly price discriminate—that is, it
can charge a different price for every unit of the good.
What areas now represent consumer and producer
surplus?
e. Does the possibility of “perfect” price discrimination lead
you to change your argument from part (c)? Are there
considerations other than allocative efficiency that might
be important here?
rishikesh
(rishikesh)
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