Asked Oct 27, 2019

Does a monopolistic competitor produce too much or too little output compared to the most efficientlevel ? What practical considerations make it difficult for policymakers to solve this problem?


Expert Answer

Step 1

A monopolist is a single supplier to a market. The goods produced by a monopolist do not have close substitutes. Hence, it is the monopolist’s output decision that determines the market price.

Step 2

Market outcome for monopoly

For profit maximization, a monopolist chooses to produce output level at which marginal revenue is equal to marginal cost.

As per figure (1) below, the profit maximizing level of output for a monopoly is equal to QM. As at this level, marginal revenue curve and marginal curve intersect. The demand curve indicates the price PM at this level of output.

In the figure (1), the shaded green region indicates the consumer surplus and the shaded blue region indicates the producer surplus.


Image Transcriptionclose

ΜΟΝΟΡΟLY Price Consumer Surplus Marginal Cost PM Marginal ducer Surplus Revenue Demand Quantity QM Figure (1)

Step 3

Market outcome for perfect competition

In a competitive market, the firm produces until the point price equals marginal cost.

Therefore, as shown in figure (2), QC is the equilibrium quantity and PC is the correspondin...


Image Transcriptionclose

PERFECT COMPETIΤION Price Consumer Surplus Marginal Cost Pc Marginal Revenue Producer Surplus Demand Qc Quantity Figure (2)


Want to see the full answer?

See Solution

Check out a sample Q&A here.

Want to see this answer and more?

Solutions are written by subject experts who are available 24/7. Questions are typically answered within 1 hour.*

See Solution
*Response times may vary by subject and question.
Tagged in



Related Economics Q&A

Find answers to questions asked by student like you
Show more Q&A

Q: Question is pinned below

A: Price elasticity of demand of product X is unit. At price $9.5 unit per quantity demanded of product...


Q: Consider the following events: Scientists reveal that consumption of oranges decreases the risk of d...

A: A study showing that eating oranges reduces the risk of diabetes will increase the demand of oranges...


Q: Suppose the price elasticity of demand for farm products is elastic. If federal government wants to ...

A: The price elasticity can be measured as the percentage change in quantity demanded due to percentage...


Q: At CENGAGE MINDTAP Q Search this course Aplia Homework Chapter 15 3. Types of unemployment The three...

A: If people above 16 years are not able to find a job but are willing to work are considered as unempl...


Q: Help in deciding the correction answer 1.  The Law of diminishing marginal utility explains why a. m...

A: Answer -   1. Solution -  For deciding the correct option we will evaluate all the option -a)  Most ...


Q: Savings, Investment Spending, and the Financial System - End of Chapter Questions 12. Indicate wheth...

A: a) When Rupert Moneybucks buys 100 shares of existing Coca-Cola stock, he is investing in a financia...


Q: Consider the market for minivans. For each of the events listed here, identify which of the determin...

A: Hey, Thank you for the question. According to our policy we can only answer 3 subparts per question....


Q: People make decisions by comparing marginal benefits with marginal costs. An optimaldecision require...

A: Answer - Marginal Benefit -  "Marginal Benefit are the maximum amount a consumer willing to pay for ...


Q: When unwanted inventories pile up in retail stores, how is production affected?  What are the steps ...

A: When the inventories pile up in retail stores, then the stores will first try to clear the stores by...