Public Finance Assignment Example | Topics and Well Written Essays - 250 words

Public Finance - Assignment Example The point E shows the equilibrium point where P=Q. Subsequently, this is the point where the Marginal Revenue is equal to the Marginal Cost. This means that the value of the wine produced is virtually equal to the wine not produced hence an efficient output, Solow (1998). In the event where the wine industry is consolidated into a large monopoly firm, the unit price of wine will rise to $ 7 per bottle with 75000 bottles produced. Monopolists are price makers since they do not face any competition. Therefore, the monopoly is at will to increase the prices to $7, a $2 increase. With this effect, their demand curve is price inelastic. Therefore, monopolists try to maximize profits by setting output at the point where MR=MC, Telser (1987). Point X shows the price that is adjusted upwards by the monopoly. In this case, it is $ 7. Subsequently, point E represents the equilibrium where MR=MC with 75000 units produced. In this case, therefore, the output is not efficient since the price is greater than the Marginal Cost. This means that the utility obtained from wine consumption is greater than the utility forwent, Nikaidō (1975). Additionally, the shaded area in the graph represents the loss in the net benefits due to a subsequent reduction in production and utility, Triffin