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How does an unregulated monopoly determine the price at which is will sell it's product and...

How does an unregulated monopoly determine the price at which is will sell it's product and why it that different from a product's price in a purely competitive industry?

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Answer #1

In case of an unregulated monopoly, it is the sole producer in the market, so he charges a price which is higher than the marginal cost or he charges a price where the marginal revenue equals marginal cost or MR=MC line cuts the demand curve. On the other hand, in case of perfect competition, where there are many firms in the market and each firm is a price taker and for each firm price equals average revenue equals marginal revenue and profit maximising condition is found where the marginal cost curve cuts the price line from below or where P=MC. Hence monopolist charges a higher price than the price charged in case of perfect competition.

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