The profit-maximizing level of output for a perfectly competitive firm is socially efficient, while the profit-maximizing level of output for a monopolist is not because under perfect competition ________, while under monopoly ________. A)P = MC; P MC B)P

Question

The profit-maximizing level of output for a perfectly competitive firm is socially efficient, while the profit-maximizing level of output for a monopolist is not because under perfect competition ________, while under monopoly ________.
A)P = MC; P > MC
B)P < MR; P = MR
C)P = MR; P < MR
D)P = MC; P < MC

Quizplus · Accepted Answer

At a monopolist's profit-maximizing level of output, price is greater than marginal cost. Thus, the marginal benefit to society of the last unit produced is greater than its marginal cost, implying that the monopolist is producing less than the socially optimal level of output. In contrast, at a perfectly competitive firm's profit-maximizing level of output, price is equal to marginal cost.

The Profit-Maximizing Level of Output for a Perfectly Competitive Firm