Monopoly and competitive firms operating under similar cost functions arrive at different output decisions. Discuss these differences with graphical illustrations.
Answers
Answer:
Monopolies, as opposed to perfectly competitive markets, have high barriers to entry and a single producer that acts as a price maker.
LEARNING OBJECTIVES
Distinguish between monopolies and competitive firms
KEY TAKEAWAYS
Key Points
In a perfectly competitive market, there are many producers and consumers, no barriers to exit and entry into the market, perfectly homogenous goods, perfect information, and well-defined property rights.
Perfectly competitive producers are price takers that can choose how much to produce, but not the price at which they can sell their output.
A monopoly exists when there is only one producer and many consumers.
Monopolies are characterized by a lack of economic competition to produce the good or service and a lack of viable substitute goods.
Key Terms
perfect competition: A type of market with many consumers and producers, all of whom are price takers
network externality: The effect that one user of a good or service has on the value of that product to other people
perfect information: The assumption that all consumers know all things, about all products, at all times, and therefore always make the best decision regarding purchase.
Explanation:
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