Answer to Question #298277 in Microeconomics for garg

Question

Show that a monopolist produces a lower quantity and charges a higher price as compared

to a perfectly competitive firm.

Answer 1

Show that a monopolist produces a lower quantity and charges a higher price as compared to a perfectly competitive firm.

A monopolist sees its demand curve to be identical to the market demand curve, which is downward-sloping for most items. As a result, if the monopolist selects a high level of output (Qh), it can only charge a low price (PI). In contrast, if the monopolist picks a low production level (Ql), it may demand a higher price (Ph). The monopolist's task is to find the best mix of price and quantity to maximize profits.

This is shown in the graph below:

The demand curve that a perfectly competitive firm has is perceived to be flat. Because of the flat shape, the company may sell either a little quantity (Ql) or a large quantity (Qh) of goods at the same price (P).

quantity to maximize profits.

This is shown in the graph below: