A major difference between a monopolist and a perfectly competitive firm is that
A) the monopolist is certain to earn economic profits.
B) the monopolist's marginal revenue curve lies below its demand curve.
C) the monopolist engages in marginal cost pricing.
D) the monopolist charges the highest possible price that he can.

Question

Quizplus · Accepted Answer

A monopolist has market power and can control price to some extent. Therefore, the demand curve they face is downward-sloping. However, in order to sell more units, they must lower price on all units sold. This means the marginal revenue (the additional revenue from selling one more unit) will always be less than the price for the previous unit. Therefore, the monopolist's marginal revenue curve lies below its demand curve. In contrast, in a perfectly competitive market, the firm is a price taker and cannot control the market price. This means the firm faces a perfectly elastic demand curve and the marginal revenue is equal to the market price.

A Major Difference Between a Monopolist and a Perfectly Competitive