How do competitive firms and monopolists differ
A)A competitive firm cannot choose its level of output; a monopolist chooses its level of output.
B)A competitive firm's short-run profit is always zero; a monopolist can have a positive short-run profit.
C)A competitive firm's marginal-revenue curve is horizontal; a monopolist's marginal-revenue curve is downward sloping.
D)A competitive firm sets price equal to marginal cost; a monopolist sets price equal to marginal revenue.

Question

Quizplus · Accepted Answer

The main difference between competitive firms and monopolists is in their market power. Competitive firms have no market power and so they are price takers, meaning they have to accept the market price. This means their marginal revenue curve is horizontal as they can sell as much as they want at the market price. In contrast, a monopolist has market power and can choose its level of output, meaning it faces a downward sloping demand curve and its marginal revenue curve is also downward sloping.

How Do Competitive Firms and Monopolists Differ