If marginal cost is constant, what happens to a market if it alters from perfect competition to monopoly without any change in the position of the market demand curve or any variation in costs?
A) Consumer surplus decreases, producer surplus increases and a deadweight loss is created.
B) Consumer surplus decreases, producer surplus decreases and a deadweight loss is created.
C) Consumer surplus increases, producer surplus decreases and a deadweight loss is created.
D) Consumer surplus increases, producer surplus increases and a deadweight loss is created.

Question

Quizplus · Accepted Answer

When a market shifts from perfect competition to monopoly, consumer surplus typically decreases because the monopolist can set higher prices. Producer surplus increases as the monopolist can capture more of the market surplus by setting prices above marginal cost. This shift also creates a deadweight loss because the monopolist produces less than the socially optimal quantity, leading to inefficiencies in the market.

If Marginal Cost Is Constant, What Happens to a Market