Assume a hypothetical case where an industry begins as perfectly competitive 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

When an industry transitions from perfectly competitive to a monopoly, the market power shifts from many sellers competing to a single seller dominating the market. This allows the monopoly to increase prices and reduce output, resulting in a decrease in consumer surplus and an increase in producer surplus. However, because the monopoly restricts output, it also creates a deadweight loss, reducing economic efficiency. Therefore, choice B best describes the outcomes of this hypothetical case.

Assume a Hypothetical Case Where an Industry Begins as Perfectly