Question

According to the graphs of the possible outcomes of a competitive firm and a monopoly in the same market, which of the following is a correct statement? Price Price and cost and cost MC PM Pc D MR D Qc Market quantity (a) Competitive Industry QM Qc Market quantity (b) Monopoly as Sole Provider Correct Answer(s) Drag appropriate answer(s) here MR I know I Oc Market quantity (a) Competitive Industry Q Market quantity (b) Monopoly as Sole Provider Correct Answer(s) 59 Drag appropriate answer(s) here Curre When firms merge into a monopoly, the market price will rise in a competitive industry, firms do nd have a MC function Multiple monopolies in this market would reduce the output even more than shown. + Competitive firms and monopolies attempt to maximize profits. When firms merge into a monopoly, the market output will rise. Drag appropriate answer(s) here Incorrect Answer(s) Type here to search O et M'

Answer 1

In a competitive industry, firms produce where price equals marginal cost, resulting in allocative efficiency, whereas a monopolistically competitive firm's output leads to higher prices than marginal revenue. A monopoly produces less and charges more than a competitive market, causing allocative inefficiency and social net benefit loss.

Step-by-step explanation:

The outcomes of competitive markets versus monopoly markets significantly differ due to their structures. In a perfectly competitive market, firms are price takers and produce where price equals marginal cost (P=MC), resulting in allocative efficiency. In contrast, a monopolistically competitive firm sets its output where marginal revenue equals marginal cost (MR=MC), with price being higher than marginal revenue due to the downward-sloping demand curve.

A monopoly will produce a smaller quantity at a higher price compared to perfect competition, leading to a loss of potential social benefits since the price exceeds marginal cost (P>MC), indicating that additional production would provide a net benefit to society. When a new firm enters a monopolistically competitive market, the original firm's demand curve shifts to the left, leading to a reduced output and increased price (Q1 and P1).