Think-Pair-Share

Monopoly
Jack Wu
There are no
Producer Suv plus in
competitive market

Problem 1
• A small town is served by many competing supermarkets, which have the
same constant marginal costs.
• (A) Using a diagram of the market for groceries, show the consumer
surplus, producer surplus, and total surplus.
• (B) Now suppose that the independent supermarkets combine into one
chain. Using a new diagram, show the new consumer surplus, producer
surplus, and total surplus. Relative to the competitive market, what is the
transfer from consumers to producers? What is the deadweight loss?
 Problem 1

A. When many competing supermarket with constant marginal cost .

output =
QC Price

Price =P,
yes
customer surplus =
A
p no

Producer surplus = Zero

D
Total surplus = A q Quantity

B. If the supermarkets combine into one chain .

Price It might happen to

C
1. Qb decrease to Gm and Price vise to Pm
B
P, Pm - - - - -

,
£
D
! F
2. Customer surplus = B -1L
pp, me

f 3. Producer surplus = Dtf

p
I
MR
! 4. Totals =
Btc 1- THE
quantity
.

Qm Qc
Q S DWI =
F
Q .

6.
?⃝