1.1 Why does a single-price monopoly produce a smaller output and charge a higher price than what would prevail if the market were perfectly competitive? How much will a person be willing to give up to acquire a monopoly right? The answer is the entire value of a monopoly’s economic profit. Barriers to entry create monopoly. But there is no barrier to entry into rent seeking.

Rent seeking is like perfect competition. If an economic profit is available, a new rent seeker will try to get some of it. And competition among rent seekers pushes up the price that must be paid for a monopoly to the point at which the rent seeker makes zero economic profit by operating the monopoly.

Figure 12.7 shows a rent-seeking equilibrium. The cost of rent seeking is a fixed cost that must be added to a monopoly’s other costs. Rent seeking and rent-seeking costs increase to the point at which no economic profit is made. The average total cost curve, which includes the fixed cost of rent seeking, shifts upward until it just touches the demand curve. Economic profit is zero. It has been lost in rent seeking.