How will the price and output of a monopolist compare with perfect competition?
A) The output of the monopolist will be too large and the price too high.
B) The output of the monopolist will be too large and the price too low.
C) The output of the monopolist will be too small and the price too high.
D) The output of the monopolist will be too small and the price too low.

Question

Quizplus · Accepted Answer

In perfect competition, the market is characterized by many small firms which cannot influence the market price. Thus, the price will be close to the minimum of the average total cost curve and output will be at the point where marginal cost equals price. On the other hand, a monopolist has market power and can set the price above marginal cost. As a result, the output will be lower than in perfect competition and the price will be higher. Therefore, the output of the monopolist will be too small and the price too high, making choice C the correct answer.

How Will the Price and Output of a Monopolist Compare