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If a perfectly competitive firm and a single price monopolist face the same demand and cost curves then the competitive firm will produce a a
If a perfectly competitive firm and a single price monopolist face the same demand and cost curves then the competitive firm will produce a
a. greater output and charge a lower price than the monopolist.
b. greater output but charge the same price as the monopolist.
c. greater output and charge a higher price than the monopolist.
d. smaller output and charge a lower price than the monopolist.
e. smaller output and charge a higher price than the monopolist.
Expert Solution
Option a
a. greater output and charge a lower price than the monopolist.
A monopoly produces at MR=MC, and perfect competitive firm produces at MC=P.
For a monopoly, MR is downward sloping, and MC is upward sloping.
For perfect competitive firm MR=P and it is horizontal. MC is upward sloping.
The MR=MC is at smaller output level than the MC=P because MR curve for a monopoly is double sloped than the demand curve. It means the monopoly produces less than a perfectly competitive firm.
A monopoly firm charges price from the demand curve which is above the MR curve and a perfectly competitive firm charges price from the demand curve which is the same as the MR curve. It means the perfectly competitive firm price is less than monopoly.
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