Technology Adoption and Welfare under a Monopoly : An Illustration of Microeconomic Policy Analysis

Content Provider	Semantic Scholar
Copyright Year	1998
Abstract	Graphical presentation in textbooks of the problem of technology adoption by a monopolist always assumes a uniformly downward shift in the marginal cost curve. My purpose in this article is to show that, despite its convenience, this nonintersecting marginal cost assumption obscures some of the workings of a monopoly and incorrectly suggests that welfare improvements and adoption are synonymous. Using graphs and an economic surplus argument, I study the conventional analysis and clarify some issues concerning monopoly and technical change. Specifically, I explore the relationships among welfare, adoption, and output. When an alternative technology reduces output but increases social welfare, then it is adopted. Further, when a technology increases output and is adopted, then it increases social welfare. The graphical analysis provides a good classroom opportunity to evaluate welfare, as well as to demonstrate how monopolies work and why they are inefficient. As human knowledge advances, resource availability changes, and legislation is altered, monopoly firms continually face new choices among technologies that may or may not result from active research and development (R&D) by firms. Apart from the deadweight-loss issue created by a monopoly, there are the issues of incentives for R&D and adoption of technical innovations by the monopolist. The appropriability of rents associated with innovation implies that the compet-
File Format	PDF HTM / HTML
Alternate Webpage(s)	http://www.indiana.edu/~econed/pdffiles/spring98/hennessy.pdf
Language	English
Access Restriction	Open
Subject Keyword	Choice Behavior Entity Name Part Qualifier - adopted Graph (discrete mathematics) Graphical user interface Marginal model Monopoly Research and Development Social Welfare Textbooks hearing impairment
Content Type	Text
Resource Type	Article