Assume a hypothetical case where an industry begins as perfect competition and then becomes a monopoly.Which of the following statements comparing the conditions in the industry under both market structures is true?
A)A monopoly will produce more and charge a higher price than would a perfectly competitive industry producing the same good.
B)A monopoly will produce more and advertise more than would a perfectly competitive industry producing the same good.
C)A monopoly will produce less and charge a higher price than would a perfectly competitive industry producing the same good.
D)A monopoly will produce less and charge a lower price than would a perfectly competitive industry producing the same good.

Question

Quizplus · Accepted Answer

In a perfectly competitive market, firms compete with each other and there are no barriers to entry or exit, so firms cannot charge a price above the market price. As a result, the industry produces at the efficient level of output and charges a price equal to the minimum of the average cost curve. In contrast, a monopoly has market power, meaning that it can charge a higher price than would prevail in a competitive market. Since a monopoly is the sole provider of the good, it can restrict output to drive up the price. Thus, a monopoly will produce less than a competitive market and charge a higher price.

Assume a Hypothetical Case Where an Industry Begins as Perfect