Which of these statements regarding the differences between monopoly and a competitive market are true?
Choose one or more:
A. There are more firms in a competitive market than in a monopoly.
B. A monopolist can earn profits in the long run, but a firm in a perfectly competitive market cannot.
C. A monopoly is a price maker, while a competitive firm is a price taker.
D. A monopolist will produce less than the output produced in a perfectly competitive market.
Homework Answers
Ans) In Perfectly competitive market there are many small sellers selling homogeneous products. Since individual firm are too small to influence the market, price is decided by forces of demand and supply. This price is equal to marginal revenue of single firm and also acts as its demand curve. Perfectly competitive market produces socially optimal quantity. In long run due to no barrier, firms always earn zero economic profit.
Monopoly is when there is single seller selling unique product. Since there is single seller, seller is price maker. Monopoly produces less quantity than socially desirable. In long run due to high barriers, firms may earn economic profit.
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