Question

Type your answer in the box. Because monopolies have market power and can influence the price of the goods they sell they tend to produce lower output and charge a higher price than would prevail in a equilibrium. Do you know the answer? I know it Think so Unsure No idea

Answer 1

Monopolies charge higher price with lower output than would prevail in a competitive equilibrium. Monopoly is the single seller, where there is no close substitute for his product. There are barriers to entry into the market. Thus, he has the market power to control the price and output. Under perfect competition market, firms cannot influence the market price, because there are large number of buyers and sellers in the market. There is a fixed price for the product and all the firms produce homogeneous products. There is free entry and exit from the market.