The figure below shows the market equilibrium (point B) at the intersection of d
ID: 1208255 • Letter: T
Question
The figure below shows the market equilibrium (point B) at the intersection of demand and supply curves under perfect competition.
Figure 11.5
D: Market demand curve
S: Market supply curve
Refer to Figure 11.5. Assume that the curve labeled S represents the monopolist’s marginal-cost curve and the curve labeled D represents the monopolist’s demand curve. Which of the following will represent the consumer surplus?
An area that is less than PPCBA
The area 0BPPC
The area PPCBA
The area ABS
The area 0BA
The figure below shows the market equilibrium (point B) at the intersection of demand and supply curves under perfect competition.
Figure 11.5
D: Market demand curve
S: Market supply curve
Explanation / Answer
In monopolist market MR is below AR and equilibrium is established where the MR =MC
output is reduced as comparison to the perfectly competitive market and price is increased.
thus, the PPC BA represents the surplus in competitive market and in monopolist market consumer surplus shall be less than the consumer surplus in the competitive market.
Hence correct answer is (a) An area that is less than PPCBA
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