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 increases, and the previously existing deadweight loss decreases.
B) Consumer surplus increases, and the previously existing deadweight loss increases.
C) Consumer surplus is eliminated, and an equal-sized deadweight loss is created.
D) Consumer surplus decreases in size, and a deadweight loss is created.

Question

Quizplus · Accepted Answer

In a monopoly market, the monopolist has the power to set the price higher than the marginal cost, which leads to a reduction in consumer surplus. Moreover, the monopolist reduces the quantity produced, causing a deadweight loss - the loss of efficiency in the market. Therefore, if there is no change in the market demand curve or the cost structure, but the market alters from perfect competition to monopoly, the consumer surplus will decrease in size, and a deadweight loss will be created.

If Marginal Cost Is Constant, What Happens to a Market