Question

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? Select one: a. Consumer surplus increases, producer surplus decreases 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 increases and a deadweight loss is created. d. Consumer surplus decreases, producer surplus increases and a deadweight loss is created.

Answer 1

Consumer surplus decreases, producer surplus increases and a deadweight loss is created.

Step-by-step explanation:

A perfect competition is characterised by many buyers and sellers of homogeneous goods and services. Market prices are set by the forces of demand and supply.

price = marginal cost = marginal revenue

a monopoly is when there is only one firm operating in an industry.

in a monopoly, price is greater than marginal cost

consumer surplus is the difference between the highest amount a consumer is willing to pay for the good and the price of the good

producer surplus is the difference between the price of a good and the least amount the seller is willing to sell the good.

as a result of the transition, prices would rise. this would lead to a decrease in consumer surplus and an increase in producer surplus. deadweight loss is created.