Consumer and Producer Surplus in a Monopoly

Monopolies set at a price that increases producer surplus and decreases consumer surplus, thus benefiting themselves. By doing this monopolies create dead weight loss, or produce at an allocatively inefficient point. Compared to perfect competition, monopolies disregard society's benefits, in order to maximize their own.

The above image is a representation of consumer and producer surplus in a perfectly competitive market. The two surpluses are equal in this case, but does not have to be so; depending on the inclination of the cruves and where they do cross. monopolies take away from the consumer surplus and transfer the benefits to producer surplus.

In contrast to the image to the right, this graph shows how monopolies manipulate producer and consumer surplus for their own benefit.


Consumer and Producer Surplus
Consumer and Producer Surplus in Monopolies

What are two qualities of consumer and producer surpluses in pure monopoly?

Any two of the following:

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  • Producer surpluse tends to be greater in Monopolitic industries, than in perfectly competitive industries.
  • There exists a dead weight loss that is neither Consumer, nor Producer Surplus.
  • Producer surplus outweighs consumer surplus because they are able to be price makers.

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