Welfare Dualism and Profit Maximization

Nicolas Boccard

In this short piece[1], we prove a folk theorem, that is to say a result that has been known intuitively by most teachers of microeconomics for a long time.

The usual textbook characterization of monopoly pricing uses the Lerner (1934) index of market power and elasticity of demand ε; it read (p-MC)/p = 1 / ε while the formula for efficiency reads (p-MC)/p = 0. These equations  seem to obey quite different principles but those who have studied the pricing of a regulated public service such as energy distribution know they are cousins.

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