Chapter 14, Problem 1QE

To determine

The key difference between a monopolist and a competitor.

Explanation of Solution

The key difference between a monopolist and a perfect competitor is that a monopoly is a price maker and a perfectly competitive firm is a price taker. This would mean that the output decisions taken by a monopoly firm can affect the market price and the monopoly price is always greater than its marginal revenue (P>MR). On the other hand, a competitor has no market power and in a perfectly competitive market, the price is always equal to the marginal revenue (P=MR).

Economics Concept Introduction

Perfectly competitive market: The perfect competition is a market structure in which large number of buyers and sellers are selling the homogeneous product in the market. Thus, there will be no market control to any one seller in the market and the price and output decisions are determined by the market forces.

Monopoly: Monopoly is a market structure in which a single seller enjoys the largest market share with many buyers.