Answer to Question #115382 in Microeconomics for Janine

Question

If a monopoly market were to be replaced with a perfectly competitive market for the same product and with the same cost structure, what could we expect?

Answer 1

A monopoly is a market structure where there is a single seller and many buyers. On the other hand, the perfectly competitive market is a market structure that has numerous buyers and sellers.

If the monopoly changes to be a perfectly competitive market structure the results will be:

The prices will decrease, quantity produced will increase and efficiency will increase significantly.

A perfectly competitive firm is a price taker and therefore the price will decrease. Comparing the quantity produced by the monopoly to that produced by the perfectly competitive markets, the quantity in competitive markets is more. A monopoly is able to control both the price and quantity which is not the case in the perfectly competitive goods. The perfectly competitive firms will produce more goods in order to increase the level of revenue.

In the perfectly competitive firm the price is made to be equal to the marginal cost, therefore, the allocative efficiency will increase.