16.3 Monopoly and Competition Compared
MyEconLab Concept Video
Imagine a market in which many small firms operate in perfect competition. Then suppose that a single firm buys out all these small firms and creates a monopoly. What happens in this market to the quantity produced, the price, and efficiency?
Output and Price
Figure 16.5 shows the market that we’ll study. The market demand curve is D. Initially, with many small firms in the market, the market supply curve is S, which is the sum of the supply curves—and marginal cost curves—of the firms. The equilibrium price is PC, which makes the quantity demanded equal the quantity supplied. The equilibrium quantity is QC. Each firm takes the price PC and maximizes its profit by producing the ...
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