In Figure 12.7, the unregulated monopolist produces less than the efficient amount of steel. Does this always have to be the case when external costs are present? Can you redraw Figure 12.7 such that the profit-maximizing monopolist produces more than the socially efficient amount of steel? Could it ever be the case that the unregulated monopolist produces exactly the efficient amount?

Figure 12.7

Transcribed Image Text:

Extra DWL from Pigovian fee -DWL from unregulated monopolist - Additional DWL from conventional analysis (ignoring pollution) --MCT -MCU ST SU S' MR Steel Production (S)