Question

b) In several sections of this course, we discussed how market structure impacts results. In particular, we looked at the level of competition (perfect competition and monopoly), and how it impacts the market. In theory, what impact does monopoly have on price, output and efficiency in the market, relative to perfect competition? Use a graph.

Answer 1

The monopoly equilibrium is at ,

MR=MC ,

While perfect competition equilibrium is at,

P=MC.

Because marginal revenue falls faster than price ,so monopoly equilibrium is at a lower QUANTITY than perfect competition.

So lower QUANTITY means the associated equilibrium price will higher in Monopoly.

The efficency refers to MAXIMIZATION of Total welfare or total surplus.

The total welfare is Maximizing at where marginal benefit is equal to marginal cost to society.

The price ( p) refers marginal benefit while MC refers to marginal cost.

So perfect competition equilibrium Maximizing total surplus due to it Equilibrium at ,P=MC.

While monopoly equilibrium is at MR=MC or

P>MC ,so it means equilibrium quantity meeds to increase to maximize total surplus.

So Monopoly market is not efficent while perfect competition is an efficient market.