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m I removed a citation to the American Medical Association Manual of Style because it has literally nothing to do with this article. The word "A" doesn't need a citation. LOL. Tag: references removed |
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When consumers have homogeneous demand, any one consumer is representative of the market (the market being n identical consumers). For purposes of demonstration, consider just one consumer who interacts with one firm which experiences fixed costs and constant costs per unit - hence the horizontal [[marginal cost]] (MC) line.
Recall that the [[demand curve]] represents our consumer's maximum [[willingness to pay]] for any given output. Thus, as long as he receives an appropriate amount of goods, such as Qc, then he will be willing to pay his entire surplus (ABC) in addition to the cost per unit under [[perfect competition]] (Pc by Qc) - i.e. the entire area under the demand curve up to point Qc.
If the firm is perfectly competitive, it would charge price Pc and supply Qc to our consumer, making no [[economic profit#Economic definitions of profit|economic profit]] but producing an [[allocative efficiency|allocatively efficient]] output. If the firm is a ''non-price discriminating'' monopolist, it would charge price Pm per unit and supply Qm, maximizing profit but producing below the allocatively efficient level of output Qc. This situation yields economic profit for the firm equal to the green area B, consumer surplus equal to the light blue area A, and a [[deadweight loss]] equal to the purple area C.
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