explain why both monopolies and perfectly competitive firms produce the output where MR=MC. since MR=MC for...

explain why both monopolies and perfectly competitive firms produce the output where MR=MC. since MR=MC for both monopolies and perfectly competitive firms, why is the profit-maximizing price based on MR=MC higher than MC for the monopoly but equal to MC for perfect competition?

Expert Solution

ANSWER:

GIVEN THAT:

THE BOTH MONOPOLIES AND PERFECTLY COMPETITIVE FIRMS PRODUCE:

1. Now in a perfectly competitive market what happens is that the demand curve that is faced by the firms is horizontal at the price determined by the interaction of market demand and market supply curve so the marginal.

2. Revenue on every additional unit sold is also constant and equal to price so output is produced when mc= mr and mr is equal to price so the pptimal condition in perfect competition is where p= mc

3. But what happens in monopoly is that the firm is price maker they arent price takers so they decide the price as per the fact that they have to maximize profits for the company they face a downward sloping demand curve thus a downard sloping

4. Marginal revenue curve that lies below the demand curve so when they put mr= mc the output they get is less than that of perfect competition and as demand curve lies above marginal revenue curve so the price they get is higher than that of perfect competition.

Rahul Sunny answered 6 months ago

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