One difference between a perfectly competitive firm and a monopoly is that a perfectly competitive firm produces where
A) marginal cost equals price, while a monopolist produces where price exceeds marginal cost.
B) marginal cost equals price, while a monopolist produces where marginal cost exceeds price.
C) price exceeds marginal cost, while a monopolist produces where marginal cost equals price.
D) marginal cost exceeds price, while a monopolist produces where marginal cost equals price.

Question

Quizplus · Accepted Answer

In a perfectly competitive market, firms are price takers and must produce where the market price equals their marginal cost. Therefore, a perfectly competitive firm produces where marginal cost equals price. On the other hand, a monopoly has market power and can set their own price, so they will produce where marginal revenue equals marginal cost. Since a monopolist wants to maximize profits, they will charge a price higher than marginal cost, resulting in a higher price and lower quantity produced compared to a perfectly competitive market. Therefore, the correct difference is that a perfectly competitive firm produces where marginal cost equals price, while a monopolist produces where price exceeds marginal cost.

One Difference Between a Perfectly Competitive Firm and a Monopoly