 In today's session, we will continue our discussion on monopoly. So, few more aspects of monopoly we have to cover in this particular segment. So, today our focus will be on that. So, if you quickly remember whatever we have discussed last class is it is all about the monopoly supply curve, why there is a absence in the absence of supply curve in the monopoly. Then we discuss about the multi plant monopolization and in this case generally the monopolist produces the entire outputs to be supplied by firm in different plants and all these plants are having a different cost function. Some plants they are operating at a lower cost and some plants they are operating at a higher cost and also we discuss that generally how the price and output decisions are made using this in case of typically in case of a multi plant monopolist. And then we discuss about this how to measure the monopoly power through different methods like we have a learner index, we have cross elasticity of demand or we have the market concentration ratio or the so called HHI and then we discuss about this Rothschild index and we will discuss some more about the Rothschild index and then we will move to our next topic. And after discussing this Rothschild index we will focus today on the social cost of the monopoly power. We will take a special case where there is only buyer which is just the opposite of a monopoly that is monopsony. Then we will talk about a bilateral monopoly where there is one seller and one buyer. Then we will take about some monopoly a real world evidence and then comparison between the monopoly and the perfect competition. So, if you remember in the last class we discuss the measurement of the monopoly power there are different methods that tells us and the value of that through the outcome this method they tells us that what kind of market form it is. Whether it is perfect competition, whether it is monopoly or whether between the perfect competition monopoly the monopolistic competition. So, we discuss about the Lerner index yesterday. We discuss about the cross elasticity of demand. We discuss about the Erfindl-Hirschman index and also we just introduced the Rothschild index and today we will discuss some more about the Rothschild index. Generally how this is if you look at how this decides what is the market power of the typical firm and on that basis that is decided whether what kind of market form it is, whether it is competitive, whether it is monopoly or whether it is between the competitive and monopoly market structure. So, here the entire focus is based on two notion one when individual firm change the price others they are not changing it. So, what should be the demand curve and in the second case when individual firm they are changing the demand curve others also they are following it and on that basis we will find out the value of the index. So, we will take two demand curve one is d d dash and second one is capital D d dash. Now, what is the difference between this capital D d dash and the small d d dash? This capital D d dash generally known as the proportional demand curve and why this is known as proportional demand curve because when one firm change the price other firm also change the price and that is the reason we will find this demand curve which in elastic because one firm change the price other firm change the price. So, the response to the change in the quantity demand is generally less to the change in the price and this demand curve talks about the case where one firm change the price and others they are not changing the price. So, this generally this demand curve is known as the perceived demand curve or subjective demand curve. So, this is proportional demand curve this is subjective demand curve. Now, the essential difference between these two is one where one firm change the price other generally follows that and second when one firm changing others they are not following. So, when one firm is changing other firm is also changing we get a proportional demand curve when one firm may be changing others they are not changing we call it is a perceive or subjective demand curve and why this is more elastic because since others they are not following any small change in the price of this firm generally affect the quantity demanded in a larger extent. Now, we will get the slope this is the beta and this is the alpha. Now, what is alpha? Alpha is the slope of perceived demand curve and what is beta? Beta is the slope of proportional demand curve. So, alpha is the slope of the perceived demand curve and beta is the slope of the proportional demand curve. So, now, we know the basis of this Rothschild index one we have two type two kind of demand curve one demand curve is on the basis of the one demand curve is on the basis of the when one firm change the price other reacts to it also they also change the price and second is on the basis of the proportional demand curve which is on the basis of that when one firm change other change it and perceive it one when one firm change the others they are not changing to it. So, in this case if you look at two kind of demand curve depends upon the behavior of the rivals in the firm on that basis we get we got two slope value one is with respect to the perceived demand curve and second one is with respect to the proportional demand curve. With the help of that slope value now we will try to construct the index and through the value of index we need to find out what is the market power for the typical firm. So, taking that now we will come to the index and index talks about a situation where it the value or the index value of index or the outcome index shows how for a particular firm controls the market for a particular period. So, Rothschild index is the slope of demand curve for the firm that is perceived demand curve upon the slope of the demand curve of the industry that is the proportional demand curve and the value of index in case of pure monopoly it is equal to 1 in case of perfect monopoly it is equal to 0. So, in case of pure monopoly the Rothschild index is equal to n u t and in case of perfect competition this index is equal to 0. In between 0 to unity there are number of other firms generally you will find they are into the value that ranges from 0 to 1. So, 0 talks about one extreme in case of perfect competition one talks about the other extreme in case of the in case of the pure monopoly. In between if the value of the index is in between 0 to 1 that donates some other kind of the market structure which is not strictly pure monopoly or which is not strictly pure perfect competition. So, generally this method whether it is Rothschild index whether it is learner index whether it is HHI or whether it is cross elasticity of demand generally the main motive to study this is to identify through a value identify through a index what is the market power of that specific firm. Then we will move to the next topic the social cost of monopoly power we know that all the firms they are in the market monopoly firm when they are in the different industry or the different sector they are getting benefit to the for themselves. The question comes from the what is the cost or what is the benefit that comes to the society because obviously if monopolist they are not getting profit they will be not they will not be there in the market in the long run, but what is the consequence on the society what is the consequence on the consumer group what is the benefit that comes to the society if at all they are getting it. So, monopoly power results in higher prices and lower quantity it is inelastic because there is no close substitute and they are the price maker. However, whether monopoly power make the consumer a better or worse for both the consumer producer that we can generally compare to the producer and consumer surplus when the competitive market or in a monopolistic market. What is the consumer surplus and producer surplus in the monopolistic market and what is the consumer surplus and producer surplus in the competitive market that gives us the difference between the what whether the consumer they are better or worse up whether the producer they are better or worse up in case of a monopoly market structure. So, if you look at in case of perfectly competitive firm the firm they produce at a point where marginal cost is equal to D or marginal cost is equal to the price and how we get the price that is from the demand and supply forces of the market whereas, monopoly produce where marginal revenue is equal to marginal cost and getting their price from the demand curve that is price and the quantity. The loss in the consumer when going to the perfect competition to the monopoly because in case of monopoly the P is always greater than marginal cost and this leads to a dead weight loss which generally created through the monopoly. So, in competitive market firm produce where P is equal to MC and since P is equal to MB that is willingness to buy and MC is the willingness to sell, P is equal to MC which is also equal to MB is equal to MC and this in this case the consumer get the maximum total surplus and what happens in case of monopoly in case of monopoly P is greater than marginal revenue or P is greater than marginal cost or we can say since we are saying this is also the marginal benefit the marginal benefit is greater than marginal cost. So, output falls short of efficient amount and that leads to the dead weight welfare loss. So, we need to know now whether if either charging a price which is more than which is more than the charging price which is more than the marginal cost whether the consumer at all getting a consumer surplus or the because of the increase in the price the quantity demanded decreases and neither that goes to the consumer pocket or not that goes to the producer pocket and in general that goes to a dead weight loss whether rather it is a rather it is a part of the profit of the consumer or part of the profit of the producer. So, now we will understand this graphically what is the dead weight loss and where generally the efficiency of the monopoly comes because if it is getting dead weight loss obviously, the monopoly is not efficient at least from the societal point of view and if the inefficiency comes inefficiency comes basically from the dead weight loss. So, we will say what should be the ideal condition for efficiency in case of a monopoly market and also we will see inefficiency that is through the dead weight loss. So, to understand this efficient level of output or what is the efficiency of the monopoly will take the help of the marginal cost and demand. We have demand curve and what is this demand curve this is generally the benefit or the value to the buyer this is the marginal cost this is the ideally this should be the efficient quantity what the monopoly should produce or the monopoly should sell to the buyers. Now if you look at this MC is nothing but this from here to here if you look at this is nothing but the cost to monopolist and here if you look at this is nothing but the value to buyer. Corresponding to this what is this this is cost again this we can say as the cost to monopolist and here we can say again this is value to buyer. Because this and how we are ideal identifying this value to buyer and cost to monopolist that is on the basis of the marginal cost and on the basis of the demand curve. Now in this segment we have two segment now this should be the efficient quantity and we have two segment with respect to this one which is before the efficient quantity and one which is beyond the efficient quantity. Now what happens in case of both this situation so if you take this graph again this is our demand curve this is the value to the buyer this is the marginal cost this is nothing but the cost to the monopolist. So we can say that this is the efficient quantity and here this segment if you look at now what is the significance of this segment the value to buyer is greater than cost to seller because the demand curve is lying above the marginal cost curve and what happens in this segment in this segment the value to buyer is less than cost to seller. So efficient quantity is this before this efficient quantity the value to buyer is greater than cost to seller. So obviously monopolist is not going to operate here here the value to buyer is less than cost to seller. So if you look at this is the profitable point for the monopolist but ideally what is the efficient quantity the efficient quantity or the efficient level of the output where the marginal cost is intersecting the demand curve. But what happens in practice does the monopolist generally follow a efficient level of output or not that we will see because there is always a debate because efficiency there is a inefficiency in the level of output and that is how the firm get the dead weight loss. So next we will see what is the inefficiency of monopoly or how generally they get the dead weight loss and how we will find out this inefficiency of the monopoly or inefficiency of the monopoly output again we will take the help of the demand curve and the MC curve. So this is our demand curve this is our marginal revenue curve this is the marginal cost curve. Now what is the monopoly quantity monopoly quantity is this because this is we follow a marginalist principle to generally find out the monopoly output that is MC is equal to MR and corresponding to that we get the output level which is the monopoly output level and this is the monopoly price. Now what is the efficient quantity efficient quantity is ideally corresponding to the demand curve and the marginal cost curve. So this is efficient quantity this is monopoly quantity so the difference between this monopoly quantity and the efficient quantity is generally known as the dead weight loss and this is the cost to the society in the form of the dead weight loss. Monopolists are not operating at the efficient level of output and that leads to the fact that there is a cost to the society and what is the cost to the society the cost to the society is in the form of the dead weight loss and why the dead weight loss comes into picture or why there is a evidence of dead weight loss in case of monopoly because the difference between the efficient quantity and the monopoly quantity. And monopoly quantity if you look at it is always the lower quantity and higher price and efficient quantity it is one where there is a when there is a higher quantity at a lower price. So, some amount of inefficiency is there or some amount of inefficient with respect to output with respect to price is there and that generally brings a social cost or that generally imposing cost on the society. So, if you look at the profit it is not strictly the social cost because firms they are operating in the market there is to get some amount of profit at least in order to survive in the market in order to produce the product and sell it in the market or get the need of the consumer. Then from where generally the social cost comes whether it is strictly from the profit of the monopolist or from the any other sources. So, monopolist profit is not usually a social cost but transfer of surplus from consumer to producer. So, if you remember in case of consumer surplus whenever there is a increase in the price the whatever the loss in the consumers part goes to the producer. So, in this case it is not directly coming to the the social cost is not directly coming from the monopoly profit or the profit is not usually a social cost but a transfer of surplus from consumer to producer generally a transfer generally a social cost because it takes out the surplus from the consumer and goes to the producer account. Profit can be a social cost if extra cost are incurred to maintain it such as political loving or if the lack of competition lead to cost are not being minimized. So, whether it is a political loving or if it is a lack of competition for that if there is some extra cost are incurred then only profit is generally consider as the social cost because to get profit there is some amount of extra cost involved over here. So, social cost of monopolist if you look at it is always likely to exceed the dead weight loss and why this generally exceed the dead weight loss may be rent sick is because firm may spend to gain monopoly power as we discussed in the previous slide because the there is some additional cost involved in the in order to get the profit and that is the reason the social cost may be exceeding the dead weight loss. So, firm may spend to gain monopoly power through lobbying through advertising and through building the access capacity. So, the incentive to engage in monopoly practices is determined by the profit to be gained. So, more profit may be the incentive is more and to get engage in the monopoly practices, but the larger the transfer from consumer to the firm the larger the social cost of monopoly. So, it is two dimension one more is the profit the firm gets into more kind of activity to become more kind of practice to become the monopolist or the so called the monopolization or the act of monopoly through which generally they try to get the market power and second how they get more profit when the transfer get produce from the transfer gets from the consumer surplus to producer surplus and this is nothing, but that whenever the consumer surplus get transfer into the producer surplus there is a amount of cost on the society. So, the larger the transfer from the consumer to the firm the larger the social cost of the monopoly. Now, what is the regulation of monopoly power? May be the regulations are many, but if you look at there is interest legislation which is generally for the firm which getting into the act of the monopolization. Now, since we know that monopoly power is something which is imposing a cost on the society there the public policy comes into picture up to how much quantity or up to how much limit at least the monopoly power of the firm can get control. So, generally through one of it is generally the entritus legislation or entritus law which attempts to increase the competition through the legislation and whenever there is a increase in the competition generally takes away the monopoly power or market power from the firm. Then we have the price regulation and in price regulation the focus is to eliminate the dead weight loss with the monopoly and why the dead weight loss takes place because monopoly charges a higher price which reduces the demand from the consumer and when it reduces the demand from the consumer generally some unused there is a difference between the efficient and the efficient and the monopoly output which leads to dead weight loss. So, the role of the price regulation is to charge a price or to do a price ceiling which eliminate the dead weight loss of the with the monopoly. So, then we will try to understand this price regulation through this graph. So, if you look at here there are the typical monopoly understanding like we have a average revenue curve, we have a marginal revenue curve, we have average cost curve and we have marginal cost curve. So, now if you look at the graph there are two level of output. One level of output is with respect to marginal cost and marginal revenue and other level of output if you look at it is Q 1 that is on the basis of mainly on the basis of the maybe you can call it mainly on the basis of the price ceiling and when the price ceiling is done that it gives into the another quantity. So, if you look at the graph now the monopolist produce Q m and charges the price P m when the government impose a price ceiling of P 1 the firms average and marginal revenue constant and equal for P 1 at the output level Q 1. For larger output level the original average and marginal revenue curve applies and new marginal revenue curve is therefore, a dark purple line if you look at and which intersect the marginal cost curve at the point Q 1. So, corresponding to P 1 if you look at what is the new marginal revenue curve the new marginal revenue curves comes from the price ceiling that is from P 1 and which intersect the marginal cost curve at the point Q 1. So, what is the marginal cost curve? So, marginal cost curve is this and this is at Q 1. So, this part can be called as this part can be called as the new marginal revenue curve. So, monopolist produce always Q m and the charges P m that is the price monopoly price and the output level is Q m, but when the price ceiling is imposed the price ceiling if it is imposed you will find that the quantity is Q 1 and the price is P 1 and for the larger output level the original and original average and marginal revenue curve apply, but for the new marginal revenue curve is therefore, a dark purple line typically this line this line which intersect the marginal cost curve at Q 1. So, now if the price is lowered. So, this is the P m is the price of monopoly price P 1 is the ceiling price. When price is lower to P c at the point where marginal cost intersect the average revenue and marginal cost intersect the average revenue here corresponding to we get a price that is P c and output increase to its maximum that is Q c. This is the output that would be produced by the competitive industry because this level of output is generally through the competitive industry and competitive industry is one where you follow the when we find out what is the equilibrium price and quantity we follow a principle where P is equal to m c and at this point P is equal to m c corresponding to that we get the Q c level of output and we get the price which is P c that is or we can alternately call it as a P 2. Lowering the price further that is P 3 it reduces the output to Q 3 and causes shortage. So, again if you reduces the price to P 3 that will cause a shortage to the shortage that is Q 3 by Q 3 dash and marginal revenue curve when price is regulated to be no higher than P 1. Now, what is the regulation over here? If you look at the regulation here is that when we are going on decreasing the price when we are going on decreasing the price one is monopoly price then the ceiling price is imposed that again reduces the increase the output level from Q m to Q 1 and the price is from P m to P 1, but the ideally still there is some amount of the gap between the competitive price and the ceiling price. So, still that amount of dead well loss is still there with the monopoly. If the price reduces below this competitive price generally this reduces the output to Q 3 and causes shortage that is Q 3 by Q 3 dash. So, this is again not profitable for the monopolies tip the through regulation if you are reducing the price which is even lower than the competitive price. So, here regulation works in the form of a ceiling price that somehow increases the somehow increases the output beyond the monopoly output and reduces the price below the monopoly price. So, that somehow some amount of the dead weight loss can be controlled through the regulation. Now, we will see how the regulation work in case of a natural monopoly and what is natural monopoly here? Natural monopoly is here where the one firm generally they have generated a economies of scale and they are producing in such a cost effective manner at a lower average cost of production that reduces the that reduces the scope for the other firms to enter into the market and operate. So, regulation when it comes to regulation in the case of the natural monopolies generally this P m c does not work with the extensive economies of scale. So, regulated firms have very little incentive to minimize the cost. Now, what is this P by m c? P by m c whenever P is equal to m c whenever we talk about this this is the case of a competitive economy. So, since when it comes to regulation in the natural monopoly this P is equal to m c does not work with the extensive economies of scale and natural economy natural monopoly is a market where there is more economies of scale and that generally creates a barrier for the other firms to enter. But when it comes to regulation still regulated firms have very little incentive to minimize the cost and, but when you are incentive to minimize the cost at least the some amount of the output can be controlled when it comes to the regulation. So, next we will see how the regulation work in case or how the price regulation in case of the natural monopoly and whether it affect the dead weight loss or whether it also reduces the social cost of the production. So, we have average revenue curve, we have marginal revenue curve then we have average cost and why the shape of average cost is like this because this is a case of natural monopoly and the firm is operating at the lower average cost and we have marginal cost corresponding to this point that is m c and m r we get the quantity and price. So, price is P m quantity is Q m and what is the ceiling price here if you want to make it a some if you want to make or if the policy wants to do some regulation with that they will support a price where P is equal to AC or AR is equal to AC and if you do this then we get a price that is PR that is the regulated price and what is our competitive price? Competitive price is that point where AR is equal to m c. So, AR is equal to m c is perfectly competitive price. So, we have three level of output, three level of price, we have monopoly output, we have regulated output and we have competitive output, we have monopoly price, we have regulatory price and we have competitive price. So, if it is unregulated if there is no regulation then the monopoly should produce Q m and charge P m. If the price were to regulate and the price that is the firm would lose money and go out of the business cannot cover the average cost. So, if you can ask the monopoly to produce at the price P c which is competitive price and produce the level Q c, generally monopoly would go out of the business because they will lose money and it will not cover the average cost also. So, as a regulator generally the regulator will fix the price at PR giving profit as large as possible without going out of the business and that also reduces the dead weight loss associated with the monopoly. So, what is the motive behind this price regulation in case of natural monopoly? Even if the regulator is not forcing the monopolist to use the competitive price or competitive level of output at least they are giving a regulated price which is above the competitive price and below the monopoly price and if the monopolist through regulation if they have to follow it still they are getting some amount of profit and they are not out of the business and in other way it also control the dead weight loss and brings down or reduces down the social cost associated with the monopoly power or social cost associated with the monopolist profit. Now, what is the difficulty when it comes to regulation? Till the time there is a good estimation of demand and cost that generally helps in regulating the price, but there is always a difficulty in estimate the firm's cost and demand function because they change with evolving market condition. It is not that the cost and demand function is constant generally they change with evolving the market condition. So, that leads to the need of a alternative pricing technique and what is the alternative pricing technique? The rate of return regulation allows the firm to set a maximum price based on the expected rate of return that the firm will earn. So, the rate of return regulation is the alternative pricing technique in order to understand in order to capture the dynamics in the demand and cost function and it allows the firm to set a maximum price based on the expected rate of return that the firm will earn. So, here the firm is suppose they can do a prediction that what is the rate of return they will earn once they fix up the price at this level and here the rate of return method generally the firm is allowed to choose a higher price which will give them the maximum profit. But here if you look at it is still not the free of challenges, still there is challenges in this method also this rate of return, but still it has emerged as alternative pricing technique looking into the change in the demand and cost function. So, apart from this rate of return techniques government can also set up a price cap that typically the ceiling price like we discussed just now based on firm's variable cost past prices possible inflation and productivity growth. So, here when the government is setting a price cap or they are doing a price ceiling it is not maybe on the basis of the competitive price or the monopoly price rather here some other variable is taken into consideration like the what is the firm's variable cost like what is the average variable cost at what rate the scale of operation is increasing. There previous what is the price records the possible inflation and the productivity growth and a firm is typically allowed to raise its price each year without the approval of regulatory agency by amount equal to the inflation minus expected productivity growth. So, even if the regulation is there still there is some amount of freedom to the firm when it comes to increasing the price and they can increase the price each year with the approval from the regulatory agency by amount equal to the inflation minus the expected productivity growth. So, the gap between the inflation and the expected productivity growth that is the amount what they can raise through the increase in the price that is each year and for that then do not need the regulators approval. Then we will start a new kind of market where it is the so till now if you look at it is about how many sellers or how many buyers. So, here we will specifically talk only about the more from the buyer perspective because this is a market structure or this is a form of market which is a subset of the monopoly or kind of monopoly where it is market with a single buyer. So, till the time we have the understanding that monopoly is the market where there is only single seller, but monospony is a market which there is a single buyer and a monosponyist cannot purchase unlimited amount of an input at uniform price even if it is the single buyer and here the monospony market is more into the input pricing rather than the product pricing and this monospony the evidence of monospony can be found more in the input market rather than the product market. So, this is a market with a single buyer it cannot purchase unlimited amount of an input and uniform price the price which the monosponyist must pay each quantity purchase given by the market supply curve for the inputs. So, whatever the price he pay for each quantity it has to be the market on the basis of the market supply curve for the inputs and since the market supply curve for the most inputs are positively slope the price that monosponyist must pay is generally a increasing function of quantity he purchased. So, since the supply curve is positively slope the price what he is paying that is also an increasing function of quantity he purchased and generally we take a case of the monosponyist which describe an employer with a monopolist buying power of the labor. So, here the firms employment constitute a large portion of the total employment of labor and we assume that this type of labor is relatively immobile firm is the wage maker in the sense that wage rate it has to pay is very directly with the number of worker its employee. So, they are not the wage taker they are the wage maker and whatever the wage rate wage rate they are paying to the labor that generally varies with the number of worker its employee and the employment constitute a large number of large number of large portion of the total employment of the labor then only they can influence it. So, even if they are the single buyer at least they are capturing majority share of the labor market then only they can considering as they can consider as the single buyer or they can consider as the monosponyist. So, sometimes this monospoting power of the employee is virtually complete because there is one major employer in the labor market and in this case they generally enjoy the generally enjoy the maximum monospony power because they are the single buyer or they are also considering the majority market share of the typical input. So, suppose if you look at we take a example that how generally this cost changes in case of a monospony and how we get the equilibrium in case of a monospony market we will just take a small example to understand this. Suppose a firm is using 3 units of labor at the wage rate of 60 per head and how much total factor when they are hiring 3 unit of labor with a wage rate of 60 that comes to 180. If additional unit of labor is required the firm has to pay higher price for 4th unit that is rupees 80 because all the inputs or all the units of input cannot be charged in a single wage rate and up to 3 units of wage rate they are charging 60 per head. So, the total factor cost is 180. When 4th unit is required he is charging 80 and it is not only 80 to the 4th unit also 80 rest 80 to the rest of the units also rest 3 units of labor that increases the total cost from 20 each for each unit of labor which increases the total factor cost to rupees 320 because this is now 80 rupees plus 4 units. So, that comes to rupees 320 for the total factor cost. Now, what is the marginal factor cost? The marginal factor cost if you look at here it exceeds the price of labor because price of labor is 60 and marginal factor cost at this stage is from 3rd unit to 4th unit is more than the price of the labor. So, now we will see how we take this example with the help this total factor cost marginal factor cost with the graphical explanation and how generally monasponym reach the equilibrium. So, this is the marginal factor cost for labor. This is supply for the labor and for labor this is marginal revenue product for labor corresponding to this we get number of labor or here we get another labor of labor that is according to the perfect competitive. We get a wage rate that is with respect to A that is this is W star. So, this is yes this is W star this is W dash and this is W star. Now, what is marginal factor cost for labor here? This is each increase in the quantity of the factor the firm use because this is a marginal factor cost with respect to the labor. Now, what is MRPL? MRPL is the demand curve for the labor and how we get the marginal product for labor that is MPL multiplied by price that gives us the marginal revenue product for labor. Supply curve is the supply curve for the labor. Now, what is the profit maximizing quantity? Profit maximizing quantity is the intersection of the marginal revenue product and marginal factor cost for labor. So, that gives us L star worker and pay wage rate that is W star. Now, labor receive a wage which is less than the marginal product. So, labor receive a wage which is less than the marginal product and how we find this equilibrium? We find this equilibrium through this wage rate that is W star and labor that is L star. Now, what is this L dash? L dash is ideally what is through perfect competitive? It is a case of a perfect competitive then the equilibrium can be found with the help of supply of labor and demand for labor. So, corresponding to that we get a level that is A which is W dash is the wage rate and L dash is the amount of labor. So, if it is a case of a perfect competitive market then ideally this should be the total amount of labor and this should be the wage rate. Any wage rate below this will generally bring the difference in the supply and demand for labor. The supply of labor will be less because this wage rate is not profitable or not beneficial from them and that is the reason if you look at the supply of labor is less than demand for labor if any wage rate below this. So, this can be called as W star dash or simply W double dash which is the wage rate which is less than the W star which is the minus punished wage rate and this is the perfect competitive wage rate. Any wage rate below that will generally brings down the labor supply and there is a gap between the labor demand and labor supply. So, in case of minus punish equilibrium we find the equilibrium at this point where M F C L generally the marginal factor cost of labor is intersecting the marginal revenue product for the labor and we get the output that is L star is the labor output and W star is the wage that is given to them and generally labor receives a wage which is less than the marginal product for the labor. Now, we will say what is the monospony power like the way we analyze there is a market power for the monopolist whether there is any market power for the monospony. So, monospony power is the ability of the buyers to affect the price of the goods and pay less than the price that would exist in a competitive market. So, this is again a power to give a lower price than whatever existing in the market. So, through this and when this will happen when suppose you take a case of a place where there is only one industry existing and they are considered to be the largest employer in this particular locality. So, if whatever the price they are charging the labor they have to accept it otherwise there is no other way out to get the employment. So, this is the case where the firm or where the plants they have a market share because they can influence the price and they can pay wage rate which is lower than the existing wage rate in the market. So, monospony power is the ability of the buyers to affect the price of the good and pay less the price that would exist in a competitive market. Now, on what are the factor on which the degree of monospony power generally depends? First one is the number of buyers, the fewer the number of buyers the less elastic the supply and the greater is the monospony power. Interaction among the buyers the less the buyers compete the greater the monospony power and elasticity of market supply extent to which the price is marked down below the M B depends upon the electricity elasticity of supply facing buyer. And if the supply is very elastic markdown will be small the more elastic the supply the more is the monospony power. Now, we will if you look at what is the social cost of the monopoly power. Here if you look at again we have again we have one to understand the demand another to understand the supply. Here if you look at the shaded rectangle and the triangle shows change in the buyers and sellers surplus when moving from competitive price to the competitive price and quantity. So, this is what this triangle B is nothing but the change in the buyers and sellers surplus or we can call it this is the dead weight loss because this neither goes to the neither goes to the buyers nor goes to the sellers. And why we get this amount this triangle as the dead weight loss because of the competitive price that is P C and the Q C to the monospony price and quantity that is P M and Q M. So, the difference between the P M that is the monopolist price and competitive price P C and the quantity that is quantity of monopolist and quantity of perfect competitive that gives us the dead weight loss. And because both price and quantity are lower there is an increase in the buyer surplus given the amount A by B. So, some amount of buyer surplus is there but still it is not going to the society rather it is coming to the dead weight loss because part of it is going to buyer and some amount is still considered as the dead weight loss. So, what is the social cost of monospony? The producer surplus fall by A plus C and there is a dead weight loss given by the triangle B C and it is more if you look at it is not B is the dead weight loss also the B plus C is the dead weight loss because of the monospony power. So, we will continue our discussion on monopoly few more kind of monopoly like a typical example of bilateral monopoly. Then we will do a comparative assessment between the monopoly and perfect competition and we will talk about a monopolistic form of market which is a ideal mix of both the perfect competitive market structure and monopoly somewhere lie between the monopolist market structure and the perfect competitive market structure in the next session.