Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed.
PART 5 Firm Behavior and the Organization of Industry
Chapter 15 of 32 - Monopoly
Section 17 of 34
…
A benevolent social planner who wanted to maximize total surplus in a market would choose the efficient quantity level of output, point E.
This is where the demand curve and marginal cost curve intersect.
At less than this efficient quantity, point A, the value of the good to the marginal buyer is more than the marginal cost of making the good.
At more than this efficient quantity, point B, the value of the good to the marginal buyer is less than the marginal cost of making the good.
…
Consider what the monopoly firm would do if run by a benevolent social planner.
The social planner cares about both
· the profit earned by the firm's owners, with resulting growing economy, more jobs and higher worker pay
· the benefits received by the firm's consumers, lower prices and able to buy more goods
The planner wants to maximize total surplus
· total surplus = producer surplus (profit) + consumer surplus (value to consumer in excess of price paid)
…
In Figure 7:
The demand curve shows the value of the good to consumers.
The marginal-cost curve shows the production costs of the monopoly producer.
The socially efficient quantity is determined where the demand curve and the marginal cost curve intersect.
…
At less than the efficient quantity, point A, the value of an extra unit to consumers exceeds the cost of providing it.
Increasing output would raise total surplus.
At more than the efficient quantity, point B, the cost of producing an extra unit exceeds the value of that unit to consumers.
Decreasing output would raise total surplus.
At the optimal quantity E the value of an extra unit to consumers exactly equals the marginal cost of production.
… …
benevolent social planner
zeni shakai keikakusha
善意社会計画者
Comments
Post a Comment