If the marginal cost curve of all identical firms in a perfectly competitive industry are horizontal at the same per-unit cost, then the market's consumer surplus equals the area
A) beneath the demand curve and above the marginal cost curve.
B) above the demand curve and beneath the marginal cost curve.
C) below the marginal cost curve.
D) above the demand curve.

Question

Quizplus · Accepted Answer

In a perfectly competitive market, firms all have the same constant marginal cost curve, meaning they produce goods at the same per-unit cost. This results in a perfectly elastic supply curve at that price level. The consumer surplus is the difference between the amount a consumer is willing to pay for a product and the actual market price. Therefore, the consumer surplus equals the area beneath the demand curve and above the market price (which is equal to the constant marginal cost curve in this case). So, the correct answer is A.

If the Marginal Cost Curve of All Identical Firms in a Perfectly