Question

In a monopolized market: total surplus is higher than in a competitive market, while consumer surplus is lower. consumer surplus is higher than in a competitive market, while total surplus is lower. producer surplus is lower than in a competitive market, while consumer surplus is higher. producer surplus is higher than in a competitive market, while consumer surplus is lower.

Answer 1

Answer:

In a monopolized market, producer surplus is higher than in a competitive market, while consumer surplus is lower.

Explanation:

A monopolized market is a market in which there is only one producer or seller of a product. The monopolist has market power. A competitive market is a market with many buyers and sellers who cannot individually influence price. In a competitive market, the players are price takers. Consumer surplus measures the difference between what the consumer was willing to pay for a particular commodity and how much he actually pays. Producer surplus refers to the excess of price received by producer over the unit cost of production. Total surplus is the addition of consumer surplus and producer surplus.

In a monopolized market, total surplus is lower than in a competitive market because monopolistic market is characterised with lower quantity and higher prices when compared with competitive market. However, producer surplus is higher in a monopoly market than in a competitive market. This is because in monopoly market the seller makes economic profit by setting prices above his unit cost; this is not possible in competitive market since prices are set at the point where average revenue (price) equals average cost. There is dead weight loss in the outcome of a monopolistic market. This implies a lower total surplus when compared to competitive markets. Consumer surplus is lower in monopolized market because consumers pay higher prices for lower quantities than in competitive markets.