Assume a Hypothetical Case Where an Industry Begins as Perfectly

question 131

Multiple Choice

Assume a hypothetical case where an industry begins as perfectly competitive and then becomes a monopoly.Which of the following statements regarding economic surplus in each market structure is true?

• A)Under perfectly competitive conditions, economic surplus in this industry equals consumer surplus plus producer surplus. Under monopoly conditions, some consumer surplus is transferred to producer surplus, but economic surplus is the same as it was under perfectly competitive conditions.
• B)Under perfectly competitive conditions, economic surplus in this industry is maximized. Under monopoly conditions, economic surplus is minimized.
• C)Under perfectly competitive conditions, economic surplus is equal to consumer surplus; there is no producer surplus because firms are price takers. Under monopoly conditions, economic surplus is equal to producer surplus.
• D)Under perfectly competitive conditions, economic surplus is maximized. Under monopoly conditions, economic surplus is less than under perfect competition and there is a deadweight loss.

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Definitions:

Representative

Serving as a typical example of a group or category of things; in statistics, it refers to a sample that accurately reflects the characteristics of the larger population.

Correlation

A statistical measure that indicates the extent to which two or more variables fluctuate together.

Statistical Index

A measure, often numerical, that indicates the relative position or level of a variable within a statistical distribution or dataset.

Two Factors

A psychological theory suggesting that emotion is based on two factors: physiological arousal and cognitive label.