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All of the following, except one, describe both monopoly and perfect competition
All of the following, except one, describe both monopoly and perfect competition. Which does not?
(a) Both try to maximise profits.
(b) Both reduce output if marginal cost exceeds marginal revenue.
(c) Both determine output by equating marginal revenue and marginal cost.
(d) Both increase output if marginal revenue exceeds marginal cost.
(e) Both face a perfectly elastic demand curve.
Expert Solution
The correct option is (e) Both face a perfectly elastic demand curve.
A perfectly competitive firm faces a perfectly elastic demand curve. This is because there is high competition in the market and all firms sell a homogeneous product.
On the other hand, monopolistic firms face no competition. Consumers have no other options. So, the demand is not perfectly elastic. In fact, in most cases, the demand will be relatively inelastic due to the lack of choices people have.
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