The late Nobel Laureate economist George Stigler wrote that the “purely ‘economic’ case against monopoly is that it reduces aggregate economic welfare…. When the monopolist raises prices above the competitive level in order to reap his monopoly profits, customers buy less of the product, less is produced, and society as a whole is worse off.”
a. Draw a graph similar to Figure 15.5. In your graph indicate the price that is at what Stigler refers to as “the competitive level.” Compare this price to the price at which the firm earns “monopoly profits.”

b. Use your graph to explain why society is worse off when a monopolist charges a price that earns monopoly profits rather than when price is set at the “competitive level.”

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MC Price and Transfer of consumer cost surplus to monopoly PM Deadweight loss from monopoly (B + C) Pc МСм Demand MR Marginal cost of the last unit produced by the monopoly Quantity Qc QM