-The above figure shows the market demand curve for long-distance telephone calls.Suppose the marginal cost of a long-distance telephone call is 2¢ a minute for a call no matter how many minutes of calls are made and there are 3 firms in the industry.If the firms in the industry operate as perfect competitors,the price of a call is ________ per minute and if the firms in the industry operate as a monopoly,the price of a call is ________ per minute.

Question

Quizplus · Accepted Answer

In perfect competition, firms take the market price as given and produce at the point where marginal cost equals price. In this case, the marginal cost is 2 cents, so the price will also be 2 cents. In a monopoly, the firm has market power and can set the price above marginal cost. However, the price will still be below the monopoly price in perfect competition, which is 4 cents.

-The Above Figure Shows the Market Demand Curve for Long-Distance