In contrast to a perfectly competitive firm, a monopolist operates in the long run
A) at a price higher than marginal cost.
B) with a profit equal to zero.
C) at an efficient level of output.
D) at the minimum point on its average total cost curve.

Question

Quizplus · Accepted Answer

A monopolist operates at a price higher than marginal cost in the long run because it has the power to set prices above its marginal cost, whereas a perfectly competitive firm is a price taker and must sell at the market price, which is equal to marginal cost. In order to maximize profits, a monopolist will produce at a level where marginal revenue is equal to marginal cost, which will result in a price above marginal cost. This means that a monopolist will not operate at an efficient level of output or at a profit equal to zero and may not necessarily operate at the minimum point on its average total cost curve.

In Contrast to a Perfectly Competitive Firm, a Monopolist Operates