Question

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

A. A fall in consumer surplus

B. A rise in total consumer plus producer surplus

C. A deadweight loss

D. A rise in producer surplus

Answer 1

Answer: A rise in total consumer surplus and producer surplus.

In a monopoly the price charged will be higher than a competitive market price as there will be only one supplier in the market. When there is one supplier in the market the consumer has to pay the price which he charges. So when consumer is paying more than the market price consumer surplus is decreasing and producer surplus is increasing.

So here total consumer surplus will fall and producer surplus will rise.