The following figure depicts a generalized downward-sloping market demand (D)curve for a product.It also shows the firm's relevant marginal revenue (MR)curve and marginal cost (MC)curve.Use this figure to answer the following questions:

-If the firm moves from a monopolist model that charges a single price to a perfect competition model,there would be ________ in total welfare.
A) a loss of $160
B) a loss of $80
C) a gain of $40
D) a gain of $120
E) no change

Question

The following figure depicts a generalized downward-sloping market demand (D)curve for a product.It also shows the firm's relevant marginal revenue (MR)curve and marginal cost (MC)curve.Use this figure to answer the following questions:
 
-If the firm moves from a monopolist model that charges a single price to a perfect competition model,there would be ________ in total welfare.
A) a loss of $160 
B) a loss of $80 
C) a gain of $40 
D) a gain of $120 
E) no change

Quizplus · Accepted Answer

In perfect competition, the price is equal to marginal cost, which is $40. In monopoly, the price is $80, which is higher than marginal cost. Therefore, moving to perfect competition would result in a gain of $40 in total welfare.

The Following Figure Depicts a Generalized Downward-Sloping Market Demand (D)curve