Question

Suppose the firms in a perfectly competitive industry merge to form a monopoly. Which of the following would NOT occur?

a. A rise in total consumer plus producer surplus
b. A deadweight loss
c. A rise in producer surplus
d. A fall in consumer surplus

Answer 1

Answer: a. A rise in total consumer plus producer surplus

Explanation:

When a Monopoly is formed, the Producer surplus will increase but the Consumer surplus will decrease. This is because a Monopoly will charge a higher price than a Competitive firm to get more profit as well reduce output as well.

This will result in the transfer of some Consumer surplus to the Producer as well as a Dead-weight loss being formed thereby reducing the Consumer surplus. The total surplus will therefore fall as a result of this merger.