Assuming no economies of scale and identical costs, if the firms in a purely competitive industry were replaced by a profit-maximizing monopolist, the likely result would be a(n): <\/p>\n\n\n\n
A) increase in both price and output. <\/p>\n\n\n\n
B) unchanged price and reduced output. <\/p>\n\n\n\n
C) increase in price and unchanged output. <\/p>\n\n\n\n
D) increase in price and reduced output.<\/p>\n\n\n\n
The correct answer and explanation is :<\/strong><\/mark><\/p>\n\n\n\n The correct answer is:<\/p>\n\n\n\n D) increase in price and reduced output.<\/strong><\/p>\n\n\n\n In a purely competitive industry, numerous firms produce identical products, leading to a market equilibrium where price equals marginal cost (P = MC<\/strong>). Firms are price takers, meaning they cannot set prices above the market level due to competition. The result is an efficient allocation of resources, maximizing consumer and producer surplus.<\/p>\n\n\n\n If a profit-maximizing monopolist replaces these competitive firms, the market structure changes from perfect competition to monopoly<\/strong>. Unlike competitive firms, a monopolist is a price maker<\/strong> and faces a downward-sloping demand curve<\/strong>, meaning it must lower the price to sell additional units.<\/p>\n\n\n\n To maximize profits, the monopolist produces where marginal revenue (MR) = marginal cost (MC)<\/strong> rather than where price (P) = MC<\/strong> as in perfect competition. Because the monopolist must lower prices to sell more output, MR is always less than price (MR < P)<\/strong>. As a result, the monopolist restricts output to maximize profit, leading to lower output than under perfect competition<\/strong>.<\/p>\n\n\n\n With reduced output, scarcity in the market increases, driving up the price. Thus, consumers face higher prices and reduced quantities<\/strong>, leading to a deadweight loss<\/strong>, which represents the loss of total economic welfare.<\/p>\n\n\n\n Since the problem states there are no economies of scale and identical costs<\/strong>, the monopolist cannot offset inefficiencies by reducing costs. Instead, it simply reduces output to maximize profits at the expense of consumer welfare.<\/p>\n\n\n\n Therefore, the correct answer is D) increase in price and reduced output<\/strong>, as monopoly leads to restricted supply and higher prices compared to a purely competitive market.<\/p>\n","protected":false},"excerpt":{"rendered":" Assuming no economies of scale and identical costs, if the firms in a purely competitive industry were replaced by a profit-maximizing monopolist, the likely result would be a(n): A) increase in both price and output. B) unchanged price and reduced output. C) increase in price and unchanged output. D) increase in price and reduced output. […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","ast-disable-related-posts":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"footnotes":""},"categories":[25],"tags":[],"class_list":["post-204311","post","type-post","status-publish","format-standard","hentry","category-exams-certification"],"_links":{"self":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/204311","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/comments?post=204311"}],"version-history":[{"count":0,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/204311\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/media?parent=204311"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/categories?post=204311"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/tags?post=204311"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}Explanation:<\/h3>\n\n\n\n