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COMPARING MONOPOLY AND COMPETITION: THE INCREASING‐COST CASE
Author(s) -
BROWNING EDGAR K.
Publication year - 1987
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/j.1465-7295.1987.tb00757.x
Subject(s) - monopoly , economics , marginal cost , monopsony , microeconomics , competition (biology) , natural monopoly , perfect competition , variable (mathematics) , variable cost , demand curve , mathematics , ecology , mathematical analysis , biology
When an increasing‐cost competitive industry becomes monopolized, the monopoly will possess some monopsony power in input markets. This paper presents a simple analysis comparing the performance of monopoly and competition in this case. It first assumes fixed input proportions, and then turns to the general case of variable input proportions. With variable proportions, it is shown that the monopoly's marginal cost curve lies above the competitive supply curve but the monopoly's average cost curve lies below it. The welfare cost of monopoly is not identified by the area between the monopoly's marginal cost curve and the demand curve in either case.