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Discuss how a monopolist might produce a higher output at a lower price than a perfectly competitive firm.
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Question: Discuss how a monopolist might produce a higher output at a lower price than a perfectly competitive firm. Answer: A monopolist is the only firm in an industry; it faces a downward-sloping demand, can choose its own output and price to maximum profit, and benefits from significant barriers to entry so that no other firms can join the industry. A perfectly competitive ("PC")1 industry has many sellers that sell a homogeneous product with freedom of entry and exit so that the PC firms are price-takers and make zero economic profit in the long run.2 A monopolist usually produces a lower output at a higher price than a PC firm, other things being equal. Suppose the demand and marginal costs are the same3 for the monopolist industry and the PC industry - see graph above with the same industry Demand (D) and Marginal Cost (MC1).4 The PC industry will produce Qpc and charge price...
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