Question

monopoly and competitive firms operating under similar cost functions arrive at different output decisions. discuss the difference with graphical illustrations​

Answer 1

Difference Between Monopoly and Competitive Firms :

Features Of Perfect Competitive Firms :

Large number of buyers and sellers

Homogeneous or undifferentiated or identical products

Perfect mobility of goods and factors of production

Perfect Knowledge of market conditions

Freedom of entry and exit

Absence of Transportation costs.

Uniform Price

Absence of Govt. control

Absence of Selling Cost.

Features Of Monopoly Markets :

Single Seller for a product

Absence of substitute products

Entry of new firms are restricted

The firm is the price maker.

Monopolist has complete control over supply of the Product.

Firm and industry are the same because there is only one firm in the monopoly market.

Look the attachments.

1) Demand curve of Perfect Competitive Firms

2) Demand curve of Monopoly Markets

From here , we can clearly knew that the revenue curve of Perfect Competitive is Upward rising Straight line.

And , Demand curve of Monopoly Market will slope negatively.

Answer 2

Differences between Monopoly and Competitive :-

Output and Price

• Under perfect competition price is equal to marginal cost at the equilibrium output. While under monopoly, the price is greater than average cost.

Equilibrium

• Under perfect competition equilibrium is possible only when MR = MC and MC cuts the MR curve from below. But under simple monopoly, equilibrium can be realized whether marginal cost is rising, constant or falling.

Entry

• Under perfect competition, there exist no restrictions on the entry or exit of firms into the industry. Under simple monopoly, there are strong barriers on the entry and exit of firms.

Discrimination

• Under simple monopoly, a monopolist can charge different prices from the different groups of buyers. But, in the perfectly competitive market, it is absent by definition.

Profits

• The difference between price and marginal cost under monopoly results in super-normal profits to the monopolist. Under perfect competition, a firm in the long run enjoys only normal profits.

Goals of Firms

• Under perfect competition and monopoly the firm aims at to maximize its profits.

Comparison of Price

• Monopoly price is higher than perfect competition price. In long period, under perfect competition, price is equal to average cost.

Comparison of Output

• Perfect competition output is higher than monopoly price. Under perfect competition the firm is in equilibrium at point.