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Chapter 9: Q24. (page 233)

How does the quantity produced and price charged by a monopolist compare to that of a perfectly competitive firm?

Short Answer

Expert verified

The quantity and price produced by a monopolist are set to the profit-maximizing quantity and price, contrary to perfectly competitive firms who make zero economic profit as a result of competition.

Step by step solution

01

 Step 1: Comparison between perfect competition and monopoly

The quantity and price produced by a monopolist are set to the profit-maximizing quantity and price. This occurs because monopolists don't have competitive pressure to drive their price down, so they can produce and sell at a profit-maximizing quantity and price. If this were tried in a perfectly competitive market, a competitor would undercut their price and steal all their customers. This undercut of price occurs until all firms make zero economic profit.

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Most popular questions from this chapter

Imagine that you are managing a small firm and thinking about entering the market of a monopolist. The monopolist is currently charging a high price, and you have calculated that you can make a nice profit charging 10%less than the monopolist. Before you go ahead and challenge the monopolist, what possibility should you consider for how the monopolist might react?

How is the demand curve perceived by a perfectly competitive firm different from the demand curve perceived by a monopolist?

Is a monopolist a price taker? Explain briefly.

Draw a monopolist鈥檚 demand curve, marginal revenue, and marginal cost curves. Identify the monopolist鈥檚 profit-maximizing output level. Now, think about a slightly higher level of output (say Q0+1). According to the graph, is there any consumer willing to pay more than the marginal cost of that new level of output? If so, what does this mean?

If a monopoly firm is earning profits, how much would you expect these profits to be diminished by entry in the long run?
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