The area ABF can also be considered as the efficiency loss associated with having a monopoly rather than a perfectly competitive market structure. In perfect competition the supply curve is
horizontal. This is achieved by having firms enter and exit when more or less must be produced. Accordingly, if the perfectly competitive industry’s supply curve approximates the monopolist’s
long run marginal cost curve 1 , we can say that if the monopoly were turned into a competitive industry, output would increase from 
to 
. The deadweight loss is one measure of the superiority of the perfectly competitive structure over the monopoly structure. With a
linear demand and a horizontal MC curve, the monopoly output is exactly one half of the competitive output. We will return to this in the next chapter.
Note that this critique of monopoly is not initially focused upon profit. While monopoly profits are what frequently irk the public, we have focused upon resource allocation inefficiencies. But in a real sense the two are related: monopoly inefficiencies arise through output being restricted, and it is this output reduction – achieved by maintaining a higher than competitive price – that gives rise to those profits. Nonetheless, there is more than just a shift in purchasing power from the buyer to the seller. Deadweight losses arise because output is at a level lower than the point where the MC equals the value placed on the good; thus the economy is sacrificing the possibility of creating additional surplus.
Given that monopoly has this undesirable inefficiency, what measures should be taken, if any, to counter the inefficiency? We will see what Canada’s Competition Act has to say in Government and also examine what other measures are available to control monopolies.
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