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On this last worksheet we're going to allocate the surplus under monopoly. The monopoly solution
is determined to make the producer surplus, that's this trapezoidal area, as big as possible.
So monopoly pricing is aimed at making the producer surplus big. The consumer surplus
is clearly less than it is when price is marginal cost. And there is a deadweight loss. So consumers
lose two ways. One is because.... the.... they're getting the short end of the sick...stick.
The other is because there is this deadweight loss that is created as a consequence of monopoly
pricing.
As before you have the controls that allow you to change the way the diagram behaves
as a consequence of changing the demand elasticity. If demand is more elastic that somewhat mitigates
the monopoly power and lowers the monopoly price and reduces the deadweight loss. You
can also change the marginal cost here and that has a consequence as well. Do note that
when the seller's costs rise buyers pay a higher price. That's true under monopoly and
under competition. So the fact that cost is higher certainly will be at least partly reflected
in the price.