Welfare aspects of monopoly:
Monopoly restricts output and charges a price higher than what would prevail under perfect competition. Such restriction of output results in a loss of consumer's and producer's surplus. By examining these losses we can determine the net welfare cost to the society from monopoly. Consider Figure where, DD is the demand curve, SS is the monopolist's MC curve as well as the competitive short run supply curve. MR is the monopolist's marginal revenue curve.
The competitive price is OPc and quantity supplied under perfect competition is OA. The monopolist price and output are OPm and OF respectively. As we reduce output and increase price in going from perfect competition to monopoly, the loss in consumer surplus is equal to the area PmGCPc. But the rectangles PmGJPc becomes part of revenue for the monopolist. This rectangle represents a transfer from consumer to the monopolist and therefore not a loss to the society. Thus, the area GJC is not a loss to the society. Again, from producer surplus point of view, the area JCH is net loss to the society.
Therefore, the total net welfare loss to the society is the sum of the triangle GJC and JHC. This area (dotted) represents the excess of the value to the society over the output lost forever due to monopolisation. This is often referred to as "dead weight loss".
Harberger used this theory to empirically measure the welfare costs of monopoly. He made some simplifying assumptions and found that (using data on manufacturing industries for 1924 to 1928 of USA) total welfare loss due to monopoly is about $59 million. The very presence of monopoly profit induces others to waste resources in trying capture a part of this pie. This induces unproductive activities which lead to further waste of resources.