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 transforms from perfectly competitive to a monopoly, the price increases as the monopolist reduces output to increase the price. This reduction in output causes a decrease in economic efficiency and an increase in producer surplus. Consumer surplus contracts as the price surges, and the monopolist precludes cornered buyers from finding substitutes, eliminating deadweight loss. Therefore, the correct answer is that consumer surplus will be smaller, producer surplus will be greater, and there will be a reduction in economic efficiency.

Assume a Hypothetical Case Where an Industry Begins as Perfectly