Question

Assume a hypothetical case where an industry begins as perfect competition and then becomes a monopoly. As a result of this​ change, A. consumer surplus will be​ smaller, producer surplus will be​ greater, and there will be a reduction in economic efficiency. B. consumer surplus will be smaller and producer surplus will be greater. There will be a net increase in economic surplus. C. price will be​ higher, consumer surplus will be​ greater, and output will be greater. D. price will be​ higher, output will be​ lower, and the deadweight loss will be eliminated.

Answer 1

Answer:

The correct answer is A. consumer surplus will be​ smaller, producer surplus will be​ greater, and there will be a reduction in economic efficiency.

Explanation:

Monopoly is a form of market totally opposed to perfect competition. It is part of the so-called "imperfect competition", those markets that do not meet the assumptions of perfect competition.

Three situations can be distinguished:

1. Monopoly of offer. There is only one bidder and many plaintiffs. An example is that of companies that operate an exclusive public service.
2. Monopoly of demand or monopsony. There is only one plaintiff and many bidders. One case is the dependence of the defense industry on state contracts.
3. Bilateral Monopoly. When there is only one plaintiff and one sole offeror. An example is the labor market where the negotiation of a wage increase is carried out between the employer's association and the union platform.

However, when we talk about monopoly in general, we refer to the offer that is what we are going to focus on.

In this type of market, the monopoly company has the power to set prices and quantities since there is no competition. The monopolist will offer a smaller quantity at a higher price than if the market were of perfect competition. In addition, having the sale insured, the company does not care about product quality or consumer satisfaction.