The market price in a perfectly competitive market is $15 and 2,000 units are bought and sold. Assume the market becomes monopolized. What would you expect to happen? The market price in a perfectly competitive market is $15 and 2,000 units are bought and sold. Assume the market becomes monopolized. What would you expect to happen?

The price would rise and output would fall. Producer surplus increases and consumer surplus falls.

Explanation:

In a perfectly competitive market, the firms are price takers. The price is determined by the market forces of demand and supply. The firms operate at normal profits. The industry demand curve is horizontal line.

On the other hand, in monopoly firms decide the price. Firms are the price takers. The demand curve is downward sloping. Firms enjoy super normal profit.

When the market becomes monopolized, the monopoly firm will increase the price in order to earn higher profits. At higher price the consumers will demand less.

The output level will thus fall and price will rise.

With increase in price, the producer surplus will increase but there will be a decline in consumer surplus.

The overall economic surplus will fall as some dead weight loss will be incurred as well.