ECONOMICS
PROFIT
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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a higher price and produces more output
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a lower price and produces more output
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a higher price and produces less output
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a lower price and produces less output
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Detailed explanation-1: -Unlike a competitive industry, a monopoly does not produce the efficient output. Monopolists charge a higher price and produce less output than a competitive industry. a. Efficient output occurs where marginal social cost and marginal social benefit are equal.
Detailed explanation-2: -In a perfectly competitive market, price equals marginal cost and firms earn an economic profit of zero. In a monopoly, the price is set above marginal cost and the firm earns a positive economic profit. Perfect competition produces an equilibrium in which the price and quantity of a good is economically efficient.
Detailed explanation-3: -Compared to perfect competition, a single-price monopolist produces less output and charges a higher price. Consumer surplus is reduced. The monopoly also earns a higher economic profit (ignoring rent seeking costs).
Detailed explanation-4: -The monopolist faces the downward‐sloping market demand curve, so the price that the monopolist can get for each additional unit of output must fall as the monopolist increases its output. Consequently, the monopolist’s marginal revenue will also be falling as the monopolist increases its output.
Detailed explanation-5: -Answer and Explanation: The correct answer is D. A perfectly competitive industry produces more output and charges a lower price than a single-price monopoly.