The term is applied to a situation when a monopoly of purchase is matched with the ilion poly of sale i.e.. single monopoli-« is facing a single monopsonist. In the real world. it is not common to come across such a situation. The monopolist wishes. to operate on a scale where the marginal cost is equal to marginal revenue, Before the tax: y
MR ami MC interest at E; hence = OP = MQ and output jc 00.
,\It,·, lh·· (;f\
,’V!Rand 1C~ intersect at E2; Price = Op! = M2_
Q~ .md output is OQ2 Since 1\12S! X output – MS x
output. the monopoly profit will be smaller than before. It results in higher prices and smaller output