A big difference between a competitive firm and a monopolist is that a monopolist 1. does...
A big difference between a competitive firm and a monopolist is that a monopolist
1. does not try to maximize profits.
2. cannot set its price at the market price.
3. does not charge a price equal to marginal revenue.
4. does not set marginal revenue equal to marginal cost to maximize profits.
5. can always make positive economic profits.
Homework Answers
Answer. (3) does not charge a price equal to marginal revenue.
Explanation: A monopolist aims to maximise profits. And thus, he choses output where marginal revenue is equal to marginal cost. Then at that quantity, the corresponding prices and costs are chosen. Whereas a competitive firm aims to produce efficiently. Thus they price the product where price is equal to marginal cost. And also since the demand curve is horizontal for a competitive firm, price is also equal to marginal revenue.
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