A monopoly firm has very limited information about individual buyers, so the monopoly sets one price to all buyers.The monopoly initially charges a price of $45 per unit for its product, and it earns substantial economic profits.There is no international trade in the product.

Initially, production of the product results in pollution that has a constant marginal external cost of $10 per unit. Two changes then occur.

.(1) A new technology becomes available that allows the monopoly to lower its variable costs by $7 per unit but does not change the monopoly's pollution. The monopoly adopts the new technology. (2) With the new technology, there is a change in the materials used in the product.As a result, there is a new negative externality from consuming the product, with the marginal external cost equal to $9 for each unit of the product consumed.

The monopoly market adjusts to a new equilibrium.

There is no government policy toward any externality from this market.

You are asked to compare the initial market situation before the new technology with the market situation after the new technology is in use (including the two changes above).

Statement to evaluate:As the result of the combination of these two changes, the total net surplus for the country from producing and consuming the product decreases.(That is, the new net benefit to the country from producing and consuming this product is smaller.)

$/unit 68 MCo Do units