Question

Using a single diagram with the same cost and revenue functions, compare and contrast the price, output and profitability of a single-price monopolist with that of a perfectly competitive firm.

Answer 1

Answer )

In the below diagram, we have presented the equilibrium points for both the monopolist and perfect competition market.

Monopoly:

A monopolist produces at a point where the marginal revenue equals the marginal cost.As we can see in the below diagram, this occurs at Output level "Qm" and the corresponding price at this output level is equal to "Pm".

Profit at this output level is represented by the rectangular region "abcd".

(ii) Perfect Competition:

In the perfect competition, the equilibrium point occurs where, Price equals the marginal cost.

The equilibrium output level is "Qc" and the equilibrium price at this output level is equal to "Pc".

The profit is equal to zero as the average total cost is equal to price.

Conclusion:

We can, therefore, conclude, that the monopolist output is less than the perfectly competitive market output.

The price in the monopoly market is higher than the perfect competition market.