Lesson preview · Monopoly Pricing

Deadweight Loss of Monopoly

~3 min · Free to read

The monopolist stops at $Q_{m}$ . Past that point, buyers are still willing to pay more for the next unit than it would cost to make. The trades are mutually beneficial. They just do not happen. The firm refuses, because making more would force the price down on every existing unit.

The value of the missing trades is the deadweight loss of monopoly. On the graph, it is a triangle. The top edge is the demand curve. The bottom edge is the $M C$ curve. The left edge is the vertical at $Q_{m}$ . The right edge meets at $Q^{*}$ , where demand crosses $M C$ .

The Harberger triangle. Height: the gap between price and marginal cost at $Q_{m}$ . Base: the quantity the firm refuses to produce.

Two pieces of monopoly welfare often get confused. Monopoly profit is a transfer. Consumers pay more, the firm keeps more. The total surplus is unchanged. Only the shares move. Deadweight loss is a real loss. No one gets it. The surplus simply vanishes.

Interactive — The Harberger triangle

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Demand and MC. The red triangle is the deadweight loss. Drag right to see what the firm refuses to produce.

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Is the monopolist’s profit itself a social cost?

Commit to one first. Guessing and being wrong beats reading the answer cold.

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Explain it backTeach it in your own words — plain words beat jargon.

A politician says: "This monopoly made two billion dollars in profit last year. That profit is what the monopoly costs society." In 60–100 words, explain to a voter who has never studied economics why the politician is measuring the wrong thing — what the monopoly's real cost to society is, and where it comes from.

0 words · limit 110

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