The conclusion that a monopoly results in lower output and higher prices than perfect competition relies on the assumption that
A) the demand curve for a monopoly is horizontal.
B) consumers are ignorant of the effects of monopoly.
C) the costs of production are the same whether the industry is perfectly competitive or a monopoly.
D) elasticity of demand varies along the market demand curve.

Question

Quizplus · Accepted Answer

The assumption that costs of production are the same whether the industry is perfectly competitive or a monopoly is the key assumption underlying the conclusion that a monopoly results in lower output and higher prices than perfect competition. If the costs of production under perfect competition are lower than the costs under a monopoly, then perfect competition could lead to lower prices than a monopoly, even if the output is higher. However, if the costs of production are the same under these market structures and the demand curve is downward sloping, then the conclusion that a monopoly leads to higher prices and lower output is valid. The other choices are not necessary to support this conclusion, as horizontal demand curve or inelastic demand curves may reduce the ability of a monopoly to raise prices, and consumer awareness of the effects of monopoly may limit its profit-maximizing behavior.

The Conclusion That a Monopoly Results in Lower Output and Higher