In a perfectly competitive market, if all firms face identical, constant marginal cost curves, then consumer surplus is
A) the area beneath the market demand curve and above the market clearing price.
B) the area above the market demand curve and above the market clearing price.
C) the total area beneath the market demand curve.
D) definitely zero.

Question

Quizplus · Accepted Answer

In a perfectly competitive market with identical, constant marginal cost curves, the market clearing price is equal to the marginal cost. Thus, all firms produce at the same cost and charge the same price. The consumer surplus is the difference between what a consumer is willing to pay and what they actually pay. This difference is the area beneath the market demand curve and above the market clearing price, which represents the amount that consumers would have been willing to pay for the good or service above the market price. Therefore, the correct answer is A.

In a Perfectly Competitive Market, If All Firms Face Identical