A monopolist: Maximizes profit at the output where price equals marginal cost. Charges a higher price...

A monopolist:

		Maximizes profit at the output where price equals marginal cost.
		Charges a higher price than a competitive firm, ceteris paribus.
		Is a price taker since it has market power.
		Cannot earn an economic profit in the long run.

Expert Solution

A monopolist maximizes profit when it produce that level of output corresponding to which marginal revenue equals marginal cost.

As monopolist can sell more only by reducing price, its marginal revenue curve is downward sloping and is under its demand curve unlike the competitive firm whose MR curve is horizontal straight line and coincides with its demand curve.

Due to this price corresponding to profit-maximizing level of output for monopoly is higher than that for the perfectly competitive firm.

Thus,

A monopolist charges a higher price than a competitive firm, ceteris paribus.

Hence, the correct answer is the option (2).

Rahul Sunny answered 2 years ago

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