If a monopoly situation arises from a perfectly competitive market, the portion of producer surplus that increases in a monopoly is transferred from the perfectly competitive market's
A) fixed cost.
B) long-run positive economic profit.
C) deadweight loss.
D) consumer surplus.

Question

Quizplus · Accepted Answer

In a monopoly situation, the producer gains market power and can charge a higher price than in a perfectly competitive market. This results in a decrease in consumer surplus, as consumers now pay a higher price for the same product. The portion of producer surplus that increases in a monopoly is transferred from the consumer surplus. Fixed costs, long-run economic profit, and deadweight loss are not directly related to the transfer of surplus in a monopoly situation.

If a Monopoly Situation Arises from a Perfectly Competitive Market