Answer to Question #44989 in Finance for matt

Question

can you explain why prices decrease when a market moves from a monopoly to perfect competition?

Answer 1

Perfect competition includes a LOT of firms that sell the same thing. All of their products are equal in value, so consumers will go to whoever has the lowest prices, meaning that firms will have to keep their prices low.

In monopoly, there is one firm that can set prices wherever it wants. Since it will still get customers after raising its prices, it is best for the monopolist to have prices higher than equilibrium price and produce less output
than the equilibrium output.