Chapter 61, Problem 5MCQ

To determine

Perfectly competitive industry response when a firm earns a positive economic profit.

Answer to Problem 5MCQ

(d) Monopoly produces a smaller quantity.

Explanation of Solution

The monopoly produces a smaller quantity than the perfectly competitive firm because it charges a higher price which reduces the demand for goods. Hence, option (d) is correct.

Monopoly can produce even if MR >MC, MR=MC is the monopoly’s profit maximization condition. Hence, option (a) is incorrect.

A monopoly earns super-normal profit in the long run and a perfectly competitive market earns normal profit in long run. Hence, option (b) is incorrect.

Monopolist charges higher price due to a lack of competition and market information. Hence, option (c) is incorrect.

At equilibrium, the monopolist can produce a given quantity. Hence, option (e) is incorrect.

Economics Concept Introduction

Introduction:

In a perfectly competitive industry, there is a large number of buyers and sellers, and a firm can sell as much as output at a market-determined price. In a perfectly competitive market, firm profit will be maximized at P = MC.

In a monopolist market, there is a single seller and a large number of buyers and monopoly profit will be maximized where MR = MC. A monopoly charges a higher price than a perfectly competitive firm and produces less than a perfectly competitive firm.