In a monopoly, the price is set above marginal cost and the firm earns a positive economic profit. Perfect competition produces an equilibrium in which the price and quantity of a good is economically efficient.
What is the key difference between a monopolist and a perfect competitor quizlet?
1. A monopolist takes into account the fact that its output decision can affect price, while a perfect competitor does not. 2. As the number of units a monopolist sells, the price it can get for those units falls, while a perfect competitor cannot affect market price.
How does the profit maximization condition for a monopoly differ from that for a perfectly competitive firm?
The key difference with a perfectly competitive firm is that in the case of perfect competition, marginal revenue is equal to price (MR = P), while for a monopolist, marginal revenue is not equal to the price, because changes in quantity of output affect the price.
How are monopolies and monopolistic competitive firms profitable?
While a monopolistic competitive firm can make a profit in the short-run, the effect of its monopoly-like pricing will cause a decrease in demand in the long-run. This increases the need for firms to differentiate their products, leading to an increase in average total cost.
What three things must a firm be able to do to price discriminate?
Three factors that must be met for price discrimination to occur: the firm must have market power, the firm must be able to recognize differences in demand, and the firm must have the ability to prevent arbitration, or resale of the product.
How does a monopoly firm choose the quantity it outputs to maximize profit?
A monopolist can determine its profit-maximizing price and quantity by analyzing the marginal revenue and marginal costs of producing an extra unit. If the marginal revenue exceeds the marginal cost, then the firm should produce the extra unit.
