A profit-maximizing monopoly produces a lower output level than would be produced if the industry were perfectly competitive.

Question

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A monopoly has market power, meaning they can influence the price of their product. In order to maximize profits, a monopoly will produce where their marginal revenue equals their marginal cost. In contrast, in a perfectly competitive industry, firms are price takers and will produce where their marginal cost equals the market price. As a result, a monopoly will produce less than a perfectly competitive industry since they have the ability to charge a higher price for their product.

A Profit-Maximizing Monopoly Produces a Lower Output Level Than Would