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 o f variable input proportions. With variable proportions, it is shown that the monopoly's marginal cost curve lies above the competitive su pply curve but the monopoly's average cost curve lies below it. The w elfare cost of monopoly is not identified by the area between the mon opoly's marginal cost curve and the demand curve in either case. Copyright 1987 by Oxford University Press.
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Article provided by Oxford University Press in its journal Economic Inquiry.
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