In a competitive market, total exchange surplus (i.e., consumer surplus + producer surplus) is maximized unless there is a market failure. Monopoly is a market failure that antitrust policy is designed to remedy.
a. Draw a demand and supply curve for perfect competition. On the graph, indicate consumer surplus and producer surplus.
b. Draw a demand and supply curve for a monopolist. On the graph, label consumer surplus, producer surplus and deadweight loss.
c. Briefly explain why monopoly is considered socially harmful.