Graph a Monopoly. Compare the price, quantity, and ATC of a monopoly with a perfectly competitive...

Graph a Monopoly. Compare the price, quantity, and ATC of a monopoly with a perfectly competitive firm. Who is more efficient and why?

Expert Solution

Monopoly:-

A monopoly sets MC=MR for profit maximization where the quantity produced is lower and the price charged is higher than the perfectly competitive firm. Since it is a single producer in the market,it earns economic profits both in the short run and in the long run so its ATC is below the price.

Perfect competitive firm:-

A perfectly competitive firm sets P=MC for profit maximization so it produces a greater quantity and charges a lower price than a monopoly. Since it operates in the market where there are a lot of producers selling the identical good, the price charged is equal to the ATC in the long run and it earns zero profits.

A perfectly competitive market is more efficient than a monopoly since it sets P=MC where all the quantity demanded by the market is being produced whereas a monopoly produces a lower quantity which leads to a deadweight loss and inefficiency.

Rahul Sunny answered 1 day ago

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