Consumer surplus in the unregulated monopoly market in the figure below is:
A) $16.
B) $8.
C) $4.
D) $0.

Question

Quizplus · Accepted Answer

Consumer surplus is the difference between the maximum price consumers are willing to pay for a product and the actual price they pay. In the unregulated monopoly market in the given figure, consumers would be willing to pay up to $12 for the product (as indicated by the demand curve), but they only have to pay $4 (as indicated by the monopoly's pricing decision). Therefore, the consumer surplus is the difference between the maximum price they are willing to pay ($12) and the actual price they pay ($4) multiplied by the quantity consumed (6 units). This gives a consumer surplus of (12-4) x 6 = $48. However, since some of this surplus is captured by the monopolist as profits, the net consumer surplus is ($48 - $40), which equals $8.

Consumer Surplus in the Unregulated Monopoly Market in the Figure