Suppose a perfectly competitive market results in a long-run equilibrium price of $8 and quantity of 500. If this same market were a monopoly, which of the following price and quantity combinations would be the most likely?
A) Price: $10, Quantity: 350
B) Price: $8, Quantity: 500
C) Price: $6, Quantity: 650
D) Price will equal marginal revenue and quantity will be found where marginal revenue equals marginal cost.

Question

Suppose a perfectly competitive market results in a long-run equilibrium price of $8 and quantity of 500.  If this same market were a monopoly, which of the following price and quantity combinations would be the most likely?
A) Price: $10, Quantity: 350
B) Price: $8, Quantity: 500
C) Price: $6, Quantity: 650
D) Price will equal marginal revenue and quantity will be found where marginal revenue equals marginal cost.

Quizplus · Accepted Answer

In a monopoly, the firm has market power and can set a higher price than in a perfectly competitive market. The firm will produce less than in a perfectly competitive market to maximize profits. Choice A represents a higher price and a lower quantity than in the perfectly competitive market, which is consistent with a monopoly. Choice C represents a lower price and a higher quantity, which is not consistent with a monopoly. Choice D is true for all monopolies but does not provide a specific price and quantity combination. Therefore, choice A is the most likely combination for a monopoly. Choice B represents the same price and quantity as in the perfectly competitive market, which contradicts the assumption that the market is a monopoly.

Suppose a Perfectly Competitive Market Results in a Long-Run Equilibrium