Relate the competitive market and the monopoly setting

A competitive market is the situation where there is an infinite number of firms, they all produce equal goods and are price takers, since they cannot influence the price. In this case, the equilibrium (in a goods market for instance) is given by the intersection between the consumers demand and the producers’ supply. The demand relates the price to the quantity demanded and represents the points where the consumers maximize their utility, while the supply relates the price charged to the quantity supplied (its equation is the marginal cost equal to the price) and comes from the profit maximization problem of the firm (solved by equalizing the marginal revenue to the marginal cost). In a competitive market, in the absence of imperfections and externalities, the social welfare is maximized and split between the consumers’ surplus and the producers’ surplus.

In a monopoly setting, there is just one firm producing a certain type of good, which can decide the price and has thus some market power, demonstrated by the fact that it can charge a mark-up (a sort of premium) over the marginal cost. Thanks to this power, the monopolist can produce a lower quantity of gods than the one implied by a competitive market setting and so doing he prevents some consumers from buying the good. In this case the social welfare is not maximized, in fact a part of that is called dead weight loss, which is not given to any individual.