FIGURE 12-3 -Refer to Figure 12-3.Comparing the monopoly equilibrium to the perfectly competitive equilibrium,the area representing the gain in producer surplus due to monopoly is outlined by A)P₁P₃CA less ACE. B)P₂P₃CB less ABE. C)P₀P₃CA less ACE D)P₃P₄ less ABE. E)P₂P₄E.

Question

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The area representing the gain in producer surplus due to monopoly is outlined by P₂P₃CB less ABE. This is because in a perfectly competitive market, producers would sell at P1 and produce quantity U1, whereas with monopoly, the producer can set a higher price (P2) and produce less (U2). The difference between the two equilibria is the gain in producer surplus, which is represented by the shaded area.

FIGURE 12-3 -Refer to Figure 12-3.Comparing the Monopoly Equilibrium to the Perfectly