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Industrial Organisation 2022

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Question:

Why is monopoly worse for the economy than perfect competition?

Author: Hjalmer Pedersen



Answer:

A monopolist earns abnormal profit in the long run. Total welfare is higher under perfect competition. Perfect competition and monopoly CS, PS, TS and DWL (welfare) can be seen in picture below. As can be seen, TS is higher under perfect competition as there is no dead weight loss. Meaning, total welfare is higher under perfect competition. The opposite is true for monopoly.


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A monopolist earns abnormal profit in the long run. Total welfare is higher under perfect competition.
Perfect competition and monopoly CS, PS, TS and DWL (welfare) can be seen in picture below. As can be seen, TS is higher under perfect competition as there is no dead weight loss. Meaning, total welfare is higher under perfect competition. The opposite is true for monopoly.
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