How do you find CS, PS, and DWL in a combined monopoly/perfectly competitive industry graph?
The whole point of this graph is to allow easy comparison between the outcomes under perfect competition and monopoly. By making some simplifying assumptions, we can show both the monopoly firm graph and the perfectly competitive industry graph. First, assume that the industry is perfectly competitive. We know that in a perfectly competitive industry the equilibrium price and quantity occur where Qs=Qd. Thus, the equilibrium price is $4 and the equilibrium quantity is 90. CS measures total WTP minus the amount paid for all units bought. Thus, CS is represented by area A+B+C. Firms are making 0 profit so PS=0. Finally, we know that perfect competition maximizes total surplus, so there is no deadweight loss. Now suppose that the market is supplied by a monopolist. In deciding how much to produce, a monopolist sets MR=MC and produces 50 units and charges a price of $6. We see that this a higher price and lower quantity than under perfect competition. The new CS is area A. Area C is DWL. T
