Question

1. Why is output different for a monopolist than for a firm in a perfectly competitive market?

2. Can a monopolist set both price and quantity? Explain.

Thank you!

Answer 1

(1) Under perfect competition the equilibrium point is P= MC, but under monopoly the equilibrium point is MR = MC. So its output is lower than the PCM, because the firm over here has the intensity to maximize profit, so they try to keep the output low, and there is a dead weight loss in the economy.

(2) A monopoly firm can only set its price not the output, its equilibrium point is the point where the marginal revenue and marginal cost curve intersects, then a vertical line connects the demand curve from there we get the price and indirectly the quantity. The price of the product and the cost of inputs decides the amount to be produced.