Free trade can remove the inefficiency incurred by a domestic
monopoly.
Domestic Monopolist and Import
Before trade, this country produces where MR=MC,
with production Q1
and price Pd.
(1)
After trade, as the domestic price Pd is
greater than the world price PW,
domestic consumers consume Q3.
As PW is the amount of money that producers
receive whenever they sell one more unit, the domestic monopolist will produce
when PW=MC: in other words, Q2.
Then the amount imported is Q3 - Q1.
(2)