Suppose a perfectly competitive industry is suddenly transformed into a monopoly industry. We can assume that monopoly output will be _____ than the competitive output and that _____.
A) higher; deadweight loss will emerge
B) lower; consumer surplus will increase
C) lower; deadweight loss will emerge
D) higher; consumer surplus will decrease

Question

Quizplus · Accepted Answer

In a monopoly, the output is typically lower than in a perfectly competitive market because the monopolist reduces output to raise prices and maximize profits. This reduction in output leads to a deadweight loss, as the monopolist does not produce at the socially optimal level where marginal cost equals marginal benefit.

Suppose a Perfectly Competitive Industry Is Suddenly Transformed into a Monopoly