Compared to perfect competition:
A) monopoly produces less at a higher price.
B) monopoly produces where MR = MC, and a perfectly competitive firm produces where P = MC.
C) monopoly may have economic profits in the long run, but in perfect competition in the long run economic profits are zero.
D) all of the above are true.

Question

Quizplus · Accepted Answer

A) Monopoly has market power, which allows them to charge higher prices and produce less than the competitive level, leading to inefficiency.
B) Monopoly maximizes profits where MR=MC, which is different from the perfectly competitive firm that produces where P=MC since in a monopoly, demand curve is downward sloping, so MR<P.
C) In perfect competition, firms would enter the market until they make zero economic profits in the long run. However, in a monopoly, barriers to entry prevent new firms from entering, so the monopolist can continue to earn economic profits in the long run.

Compared to Perfect Competition