Updated June 25, 2015
| Figure 1: Initial equilibrium. Graph with quantity on the horizontal axis and price on the vertical axis depicts a downward sloping demand curve for imported grain and an upward sloping supply curve for grain intersecting at a competitive price Pc and competitive quantity of Qc. |
Figure 2: Post collusion market for grain. This graph shows a marginal cost curve shifted up from the supply curve, and a marginal revenue curve below the demand curve. The monopoly quantity is determined by the intersection of the marginal cost and marginal revenue curves, and denoted Qm. At this quantity, the wholesale price Wm is determined by the supply curve and the retail price Pm is determined by the demand curve.
This graph is identical to Figure 2 with 4 areas denoted A, B, C, and D shaded in. The grain merchants made an additional profit of (Pm - Wm)*Qm. This is denoted by areas A and B in the graph, showing the transfers from consumers (area A above the competitive price and below the monopoly price) and from imported grain suppliers (area B below the competitive price and above wholesale price). Deadweight loss is given by the triangles C and D, with the C area representing lost surplus to consumers below the demand curve and above the competitive price, and the D area showing deadweight loss below the competitive price and above the supply curve. Areas C and D are to the right of the monopoly quantity, and to the left of the competitive quantity.