The following figure shows the market demand curve for penicillin, an antibiotic medicine. Initially, the market was supplied by perfectly competitive firms. Later, the government granted the exclusive right to produce and sell penicillin to one firm. The figure also shows the marginal revenue curve (MR) of the firm once it begins to operate as a monopoly. The marginal cost is constant at $3, irrespective of the market structure.

-Refer to the figure above.What is the consumer surplus when the market changes to a monopoly?

Question

The following figure shows the market demand curve for penicillin, an antibiotic medicine. Initially, the market was supplied by perfectly competitive firms. Later, the government granted the exclusive right to produce and sell penicillin to one firm. The figure also shows the marginal revenue curve (MR) of the firm once it begins to operate as a monopoly. The marginal cost is constant at $3, irrespective of the market structure.
 
-Refer to the figure above.What is the consumer surplus when the market changes to a monopoly?

Quizplus · Accepted Answer

Consumer surplus in a monopoly is calculated as the area above the price level and below the demand curve, up to the quantity sold. In this scenario, without the figure, we can infer that the shift from a competitive market to a monopoly typically results in a higher price and lower quantity, reducing consumer surplus. Given the options, $45 is a plausible amount for the reduction in consumer surplus due to the monopolistic pricing and reduced output, assuming a standard linear demand curve and a significant price increase and quantity decrease under monopoly conditions.

The Following Figure Shows the Market Demand Curve for Penicillin