A perfectly competitive firm produces where

A. marginal cost equals price, while a monopolist produces where price exceeds marginal cost.

B. marginal cost equals price, while a monopolist produces where marginal cost exceeds price.

C. price exceeds marginal cost, while a monopolist produces where marginal cost equals price.

D. marginal cost exceeds price, while a monopolist produces where marginal cost equals price.

Question

Business

Harley Zhang

5 October, 17:54

A perfectly competitive firm produces where

A. marginal cost equals price, while a monopolist produces where price exceeds marginal cost.

B. marginal cost equals price, while a monopolist produces where marginal cost exceeds price.

C. price exceeds marginal cost, while a monopolist produces where marginal cost equals price.

D. marginal cost exceeds price, while a monopolist produces where marginal cost equals price.

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Answers (1)

Know the Answer?

Mariana Singleton · Answer 1

A

Explanation:

In perfect competitive markets, firms do not have market power to change the price. This happens because there are no barries to entry: if there are firms that are selling at a price greater than the marginal cost, people will notice and more firms will enter to the market until the price drops and equals the marginal cost. All firms produce at the minimum avergae cost, the figure shows that the price is defined by the intercept between the averga cost curve and the marginal cost.

In monopolies, firms have market power and can charge a price greater than the marginal cost. As the figure shows, the monopoly price (where the monopoly quantity interceps the demand) is greater than the marginal cost (where the marginal cost curve intercepts the marginal revenue curve).