Because it is the shrinkage of the pie because we moved from the top of the hill from the efficient point to a different output, to the output of the monopolist. And we should not be surprised that this deadweight loss is what? It's the difference between the total surplus under the perfectly competitive environment and the total surplus under the case of the monopoly. The height here is 50, the base is this change of 25, and we get that the deadweight loss is equal to $625. It's again a triangle, so it's height times base divided by two. Let's go ahead and calculate the dead weight loss. So the deadweight loss is the difference between the marginal benefit and the marginal cost for all these units here. The efficient output is when marginal benefit equals marginal cost and when not producing all these units. We can find the deadweight loss, the deadweight loss is the decrease due to the fact that we're not producing the efficient output. Which should not surprise us, because we said, that in the case of a monopoly there's deadweight loss. And we can see that the market as a whole is better off under perfect competition than they are under monopoly. Now, perfect competition as I talked about, its a bit of a theoretical idea. Barriers may block entry even if the firm or firms currently in the market are earning profits. Youre the only actor who is selling anything, So you can decide what price to sell it at. And we get a total surplus that is equal to 56 25. In other cases, they may limit competition to a few firms. Looking at the total surplus under perfect competition, we add the consumer surplus of 2812.5 and the producer surplus of 2812.5. The given example of a competitive market is the smartphone industry where several manufacturers and brands are competing for the larger market share. This is possible as the firm does face competitive pressures to cut cost and provide better products. And of course if we're measuring price in dollars this would be $5000. A comparative analysis of monopoly and monopolistic competition has been made on the following aspects: 1. This is possible as firms have profit to invest in research and development. A monopoly is a market with only one seller. We add 12, and we get a total surplus that's equal to 5000. This is the most extreme, but not the most common, example of market power. Adding the consumer surplus and the producer surplus in the case of a monopoly. In both cases we have consumers and producers. Let's look at the total surplus generated in the monopoly versus the total surplus generated under the perfectly competitive environment.
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