Question

Would like to have a nice summary for each question.

The Profit Maximizing decision for the Monopolist with the Perfectly Competitive firm/industry. How do they differ? Note the differences between the Demand curve for the PC firm and the Demand curve for the Monopoly. What kinds of profits accrue to the Monopolist? Why is it said that the Monopolist’s profits persist? Why is that not true for the firms in a Perfectly Competitive industry?

Thanks

Answer 1

In the perfect competition the profit maximization condition is Price = Marginal Cost and in the monopoly the profit maximization is Marginal Cost = Marginal revenue. In the perfect competition market the firm earn zero profit in short run and normal profit in long run. In monopoly the firm earn positive profit both in short run and long run.

Under the perfect competition market demand curve is perfectly Elastic, and each firm is a price taker. In the perfect competition market industry is price maker and firm is price taker.

Under the monopoly market there is only single seller and downward sloping demand curve.

Monopoly get super normal profit in long run and normal profit in short run in other words we can say that monopoly profit is always positive.

In perfect competition market they never get super normal proft because there are large number of buyer and seller, and there is no price discrimination and industry is price maker and firm is price taker. And if price increase by any firm does not affect the output level in the market.