Figure 15-10 -Refer to Figure 15-10. Compared to a perfectly competitive market, consumer surplus is lower in a monopoly by an amount equal to the A) area FHE. B) area FGE. C) area P₁P₂EF. D) area P₁P₂GF.

Question

Quizplus · Accepted Answer

Consumer surplus is the difference between the price consumers are willing to pay for a good and the price they actually pay. In a perfectly competitive market, the price of a good is determined by the interaction of supply and demand, and consumer surplus is maximized. In a monopoly, however, the single seller has the power to set the price of the good, and consumer surplus is lower than it would be in a perfectly competitive market. The area P1P2EF represents the difference between the price consumers are willing to pay for the good and the price they actually pay in a monopoly, and is therefore the amount by which consumer surplus is lower in a monopoly than in a perfectly competitive market.

Figure 15-10 -Refer to Figure 15-10. Compared to a Perfectly Competitive Market