Assume a hypothetical case where an industry begins as perfectly competitive 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 produce at the point where marginal cost equals price. However, in a monopoly, the firm faces a downward sloping demand curve and therefore produces at the point where marginal revenue equals marginal cost. This means that a monopoly will produce less and charge a higher price than would a perfectly competitive industry producing the same good. Therefore, option C is the correct statement. Option A is incorrect as a monopoly will produce less, not more. Option B is irrelevant as advertising is not mentioned in the question. Option D is incorrect as a monopoly will charge a higher price.

Assume a Hypothetical Case Where an Industry Begins as Perfectly