Assume a hypothetical case where an industry begins as perfect competition and then becomes a monopoly.As a result of this change
A)price will be higher, output will be lower, and the deadweight loss will be eliminated.
B)consumer surplus will be smaller, producer surplus will be greater, and there will be a reduction in economic efficiency.
C)price will be higher, consumer surplus will be greater, and output will be greater.
D)consumer surplus will be smaller and producer surplus will be greater. There will be a net increase in economic surplus.

Question

Quizplus · Accepted Answer

The change from perfect competition to monopoly would result in a reduction in economic efficiency as the firm now has market power to set higher prices and produce less output. This would lead to a transfer of consumer surplus to producer surplus, resulting in a smaller consumer surplus and a greater producer surplus. Moreover, the deadweight loss due to the monopoly power would result in a net loss of economic surplus. Thus, option B is the best answer.

Assume a Hypothetical Case Where an Industry Begins as Perfect