The gains to monopolists from exercising market power
A) exceed the losses to consumers in monopoly markets, resulting in a net gain to society.
B) equal the losses to consumers in monopoly markets, resulting in no net change for society.
C) are less than the losses to consumers in monopoly markets, resulting in a net loss to society.
D) create smaller deadweight losses than occur in purely competitive industries.

Question

Quizplus · Accepted Answer

Monopolists often charge higher prices and produce less output than would occur in a competitive market, resulting in a net loss to society. This is because monopolists restrict output to increase profits, creating a deadweight loss which results in a reduction in consumer surplus. The gains to monopolists are lower than the losses to consumers, resulting in a net loss to society. Option A and B are incorrect as they suggest that a monopolist benefits society - this is not true as they suppress output and charge higher prices. Option D is incorrect as monopolist markets create larger deadweight losses compared to competitive industries.

The Gains to Monopolists from Exercising Market Power