If Marginal Cost Is Constant, What Happens to a Market

question 76

Multiple Choice

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

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Definitions:

Highly Inelastic

Describes a situation where supply or demand for a product or service is relatively unresponsive to changes in price.

Unit Elasticity

A situation where a change in the price of a good or service results in a proportional change in the quantity demanded or supplied.

Income Elasticity

A measure of how much the demand for a product changes in response to a change in consumers' income.

Demand

The total quantity of a good or service that consumers are willing and able to purchase at a given price level in a given market.