Question

is argued that monopoly is a bad thing for consumers, but a good thing for producers. Illustrate the argument using diagrams and assuming the industry is faced with constant cost.

Answer 1

From the graph, when an industry is faced with constant costs, the marginal revenue and average cost remains constant. A monopoly producer produces output at profit maximizing condition where MR=MC. The producer surplus is as indicated in the area C and D in the graph while the consumer surplus is illustrated as shown in area A and B. in monopoly, consumer surplus decreases when compared to a perfect competition market while the producer surplus increases in monopoly and decreases in perfect competition.