Question

Do both buyers and sellers lose in the monopolist market compared to the competitive?

Explain.

Answer 1

We have a competitive market, because there are many buyers and sellers of a homogeneous commodity. Equilibrium is at a crossroads of supply and demand. Houses enjoy buyer surplus at the equilibrium level of production, provided by the marked area under the demand curve and above the equilibrium price. The surplus stems from the fact that certain consumers are willing to pay more for the good than the equilibrium price.

There are no more gains from exchange at the equilibrium quantity. Producing more production does not raise overall surplus. Generating more production would potentially reduce the surplus: the marginal cost of generating more production would outweigh the marginal benefit of extra output. Producing less production would also reduce overall surplus as some of their surplus would be lost to buyers and sellers.

The competitive market is a benchmark, since it results in an effective outcome. Yet, still, very few markets are competitive. Companies hold some market influence in most countries. In particular, this means that they can set a price above the marginal cost, without losing all their sales

The area between monopoly price and demand curve. Even if there is a monopolist in this market, if their marginal value of the good exceeds the price they pay, consumers may still enjoy some surplus. And while in the case of monopoly the price may be too high, some surplus still remains flowing to buyers.