Notice that if output is only there is no consumer or producer surplus
earned on the units between and Thus, the areas 1 and 2 in Figure
12-6 represent a loss to the economy. Total surplus—consumer plus
producer surplus—is lower at than at
For any level of output above the demand curve lies below the supply
curve, which tells us (1) that consumers value an extra unit of the product
less than it costs to produce it, and (2) that society is better off if less of
that product is produced. If output is total surplus is less than it is at
. To see this, suppose that the price is Producers would earn
negative producer surplus on the units above because the marginal
cost on those units exceeds. Similarly, consumers would earn negative
consumer surplus on the units above because their marginal value of
the product is less than. (You should be able to convince yourself that
for any price, the total surplus earned on the units above is negative.)
From the figure, we conclude that at any level of output above , total
surplus is less than it is at.
The sum of producer and consumer surplus is maximized only at the perfectly competitive
level of output. This is the only level of output that is allocatively efficient.The Allocative Inefficiency of Monopoly
Revisited
We have just seen in Figure 12-6 that the output in perfectly competitive
equilibrium maximizes the sum of consumer and producer surplus. It
Q 1
Q 1 Q∗.
Q 1 Q∗.Q∗,Q 2 ,
Q∗ p∗.
Q∗
p∗
Q∗
p∗
Q∗
Q∗
Q∗