Compare and contrast the pricing and output levels of a pure monopolist and a purely competitive firm under identical cost and revenue conditions
best answer gets 10 points! thanks!
In a perfectly competitive firm, the marginal revenue is equivalent to the average revenue as the demand curve is the same price for all levels of output. That is, the demand curve is perfectly elastic and does not slope down. As a result, the price is constant at all levels of output, so a firm produces until their marginal cost matches this price.
In contrast, a monopolist faces a downward-sloping demand curve so the marginal revenue decreases faster than demand. This means that marginal cost is reached before the demand that a perfectly competitive firm would see. Thus the monopolist would have reduced output at a higher price.
In a perfectly competitive firm, the marginal revenue is equivalent to the average revenue as the demand curve is the same price for all levels of output. That is, the demand curve is perfectly elastic and does not slope down. As a result, the price is constant at all levels of output, so a firm produces until their marginal cost matches this price.
In contrast, a monopolist faces a downward-sloping demand curve so the marginal revenue decreases faster than demand. This means that marginal cost is reached before the demand that a perfectly competitive firm would see. Thus the monopolist would have reduced output at a higher price.
References :
Economics class at university, which I’m sitting in right now! (Seriously!)