Microeconomics,, 16th Canadian Edition

Monopoly restricts output and reduces total surplus, thereby imposing
a deadweight loss on society. If this market were perfectly competitive,
output would be and price would be pc. Total surplus would be the
total shaded area. Consumer surplus would be the sum of areas 1, 2, and

3. Producer surplus would be the sum of areas 4 and 5.
   When the industry is monopolized, and the monopolist has the same
   marginal costs as the competitive industry, output is restricted to
   price rises to Consumer surplus is reduced to area1. Producer surplus
   rises by area 2 but falls by area 5. (Since pm must maximize the
   producer’s profit, we know that area 2 is larger than area 5.) Total
   producer surplus for the monopolist is therefore the sum of areas 2 and 4.
   The deadweight loss of monopoly is the sum of areas 3 and 5. This area
   represents the additional surplus that would be earned if the market were
   competitive. Since the monopolist restricts output to the units
   between and are not produced and therefore they generate neither
   consumer nor producer surplus.

It follows that there is a conflict between the private interest of the
monopolist and the public interest of all the nation’s consumers. This
creates grounds for government intervention to prevent the formation of
monopolies or at least to regulate their behaviour.

Qc

Qm

pm.

Qm,

Qm Qc