Asked by Daisy Terrado on May 16, 2024
Verified
Comparing a pure monopoly and a purely competitive firm with identical costs, we would find in long-run equilibrium that the pure monopolist's
A) price, output, and average total cost would all be higher.
B) price and average total cost would be higher, but output would be lower.
C) price, output, and average total cost would all be lower.
D) price and output would be lower, but average total cost would be higher.
Pure Monopoly
A market structure where a single seller completely dominates the market, facing no competition.
Purely Competitive
A market structure characterized by a large number of firms, easy entry and exit, and a homogeneous product.
Average Total Cost
The total cost of production divided by the total quantity produced, including both fixed and variable costs.
- Gain insight into the notions of productive and allocative efficiency in relation to both monopoly and competitive markets.
Verified Answer
VB
Virgil BurnsMay 17, 2024
Final Answer :
B
Explanation :
In a pure monopoly, the monopolist maximizes profit by producing at a point where marginal revenue equals marginal cost, which typically results in a higher price and lower output compared to a purely competitive firm. The average total cost may also be higher due to lack of competitive pressure to minimize costs.
Learning Objectives
- Gain insight into the notions of productive and allocative efficiency in relation to both monopoly and competitive markets.