Monopoly and perfect competition
"In both monopoly and perfect competition the profit maximising output is at the level at which MR=MC, but only in the latter is the optimum output level such that P=MC"
Explian the above statement by comparing the model of perfect competition with that of monopoly.
- 1 十年前最愛解答
The question is simply asking you to compare the case for monopoly and perfect competition to explain the statement mentioned above.
I think you will have to draw a diagram which I cannot do here.
But the following link will do:
Basically the difference between the 2 is because monopoly has control in the market while firms under perfect competition are price takers with no freedom at all on price/quantity setting (uncompetitive firms go out of the business, so the ultimate result is that all the firms left in the market are equally competitive). Therefore while perfect competition has MR = P = Demand, monopoly can have MR not equal to D
Hence from the diagram we will see under perfect competition the equilibrium is the optimal level (Pc, Qc) while under monopoly it would become (Pm, Qm)
The quantity supplied by firms including monopoly is determined when MR=MC,
but the price is determined by Demand, so the price would be higher than the optimal level while the quantity supplied is below optimal level.