Part 1How does a monopoly transfer consumer surplus to itself? Part 1A monopoly transfers consumer surplus to itself by _______. A. raising the price compared to the perfectly competitive price B. making demand for its good more inelastic C. creating a deadweight loss D. increasing marginal cost

Question

Part 1How does a monopoly transfer consumer surplus to​ itself? Part 1A monopoly transfers consumer surplus to itself by​ _______. A. raising the price compared to the perfectly competitive price B. making demand for its good more inelastic C. creating a deadweight loss D. increasing marginal cost

BlackTom AI · Accepted Answer

To start, we need to evaluate what 'transferring consumer surplus to itself' means in the context of a monopoly's pricing.
Option A: 'A. raising the price compared to the perfectly competitive price' — This is correct in the sense that a monopoly often charges a higher price than the competitive equilibrium, which reduces consumer surplus and transfers some of it to the monopolist as higher profits. The higher price and reduced quantity create a larger portion of surplus captured by the seller rather than consumers. This matches the standard depiction of consumer surplus being redistributed in favor of the monopolist.
Option B: 'B. making demand for its good more inelastic' — Monopolies do not generally change the fundamental elasticity of demand for their product by fiat. The slope of the demand curve is determined by consumer preferences and available substitutes. If demand became more inelastic, that could increase revenue, but it does not imply a transfer of consumer surplus to the monopolist in the way described, and this option misstates the mechanism.
Option C: 'C. creating a deadweight loss' — Deadweight loss measures the total inefficiency created by producing less (or more) than the competitive quantity; it represents lost total welfare, not a transfer of consumer surplus to the monopolist. While monopolies can create deadweight loss, that loss is not the mechanism by which consumer surplus is transferred to the monopolist; rather, it is an overall efficiency loss to society.
Option D: 'D. increasing marginal cost' — Higher marginal cost reduces profits for the same quantity and does not by itself transfer consumer surplus to the monopolist. It may affect the quantity produced and the price, but the core transfer of surplus occurs through pricing relative to perfect competition, not through increasing costs.
In summary, the most accurate mechanism among the options for a monopoly transferring consumer surplus to itself is charging a higher price than the perfectly competitive price, which reduces consumer surplus and increases the monopolist’s surplus. The other options describe related concepts (elasticity changes, deadweight loss, marginal cost effects) that do not correctly capture the specific transfer notion being asked.

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