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Explain why a monopolist maximizes its long-run profit by producing that output for which marginal revenue...

Explain why a monopolist maximizes its long-run profit by producing that output for which marginal revenue equals long-run marginal cost. What sense does this monopolist pricing differ to perfect competitive market? (

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Monopoly in long run (as well as in short run) earns positive economic profit, because it produces at a point where MR=MC. Price in monopoly is set above marginal cost in order to let the firm earn positive economic profit. When the marginal revenue of selling a good is greater than the marginal cost, firms are Making a profit on that good. A monopoly follow this Marginal decision rule and so it's profit maximization involves setting MR=MC. However, in perfect competition firms always maximize profit by setting price=MC. It means that price in monopoly is set above the price charged in perfect competition, while monopolist produce less amount of goods that are produced in perfect competition. This indicates a market inefficiency in case of monopoly.

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