Domestic Industry is a Monopoly:

When a monopolist controls  the domestic industry X, the gains fiom  trade can be illustrated using Figure. The monopolist faces the downward sloping demand curve D, while MC and MR are the monopolist's marginal cost and marginal revenue schedules  respectively. In  the situation  before trade the equilibrium quantity, determined by  the intersection of the MR  and MC schedules is Q_m  and the corresponding price, read off the demand (or Average Revenue) schedule  is P_m. As  explained before consider a situation where the domestic country has a comparative  disadvantage in the product of  industry X. That is, the world price P_w  is lower  than P_m  so the good is  imported.

When trade  is opened up, imports become available  at  the world price P_w.  So in the post-trade scenario the monopolist cannot  charge a price higher than P_w  ,  which now provides an upper bound for the price  that can be charged in the domestic market.

Thus with fiee trade the monopoly equilibrium shifts to F. At  the post-trade price P_w,  total domestic demand is OQ₂,  of which OQ₁  amount is supplied by the domestic monopolist and Q₁Q₂ amount is imported.  

Before  trade the price of  the good in the domestic market P_m  was higher  than marginal cost. However, opening up trade  lowers  the domestic price and in  the post-trade equilibrium F,  the price P_w  is equal to marginal cost. Therefore  social welfare is  clearly higher  in the post- trade  situation as international competition  has  served  to limit the monopolists'  price- setting power and moved the economy to  the competitive equilibrium.

In  this  context additional gains hm  trade  can arise through a reduction  of X-inefficiency,  if competitive pressures induce the monopolist to become a more efficient producer.