What is the biggest risk associated with monopolies?

• A. Increased innovation
• B. Lower prices due to competition
• C. Higher prices and reduced consumer choice
• D. More consumer surplus

Answer: (C)

Monopoly gives one firm all the market power, so there’s little competitive pressure to keep prices low or to offer a wide range of options. The biggest risk is higher prices and reduced consumer choice because the monopolist can set prices above what a competitive market would support and limit the number of alternatives available. This reduces overall welfare: consumer surplus shrinks as people either pay more or forgo the product, and there can be deadweight loss from fewer transactions. While some argue that large firms might achieve efficiency or spur innovation, the prominent risk highlighted here is higher prices and fewer choices for consumers. The other outcomes—lower prices from competition, more consumer surplus, or guaranteed innovation—don’t align with how a monopolized market tends to operate.