Chapter 62, Problem 1MCQ

To determine

Comparison between a monopoly and a perfectly competitive market with the same cost.

Answer to Problem 1MCQ

(a) Consumer surplus is smaller.

Explanation of Solution

Since both the market have the same cost so marginal cost would be the same, price charged by a monopolist is higher than a perfectly competitive firm which decreases the consumer surplus in the monopoly case. Hence, option (a) is correct.

A monopolist earns supernormal profit but a perfectly competitive firm earns only normal profit, hence option (b) is incorrect.

Since, a perfectly competitive market charge price equal to marginal cost, there is no deadweight loss but a monopolist charges a price greater than marginal cost which decreases the quantity demanded and led to a deadweight loss. Hence, option (c) is incorrect.

Since consumer surplus is smaller in a monopoly market so total surplus will be smaller. Hence option (d) is incorrect.

A monopoly has lesser output than a perfectly competitive market due to high prices. Hence, option (e) is incorrect.

Economics Concept Introduction

Introduction:

In a perfectly competitive market, the firm can sell as much output at a given price (constant price), the firm charges a price equal to its marginal cost but in a monopoly market seller charge a higher price than the marginal cost which decreases the consumer surplus.