A perfectly competitive firm produces where
A)marginal cost equals price, while a monopolist produces where price exceeds marginal cost.
B)marginal cost equals price, while a monopolist produces where marginal cost exceeds price.
C)price exceeds marginal cost, while a monopolist produces where marginal cost equals price.
D)marginal cost exceeds price, while a monopolist produces where marginal cost equals price.

Question

Quizplus · Accepted Answer

In perfect competition, a firm is a price taker and has to accept the market price. Therefore, to maximize profit, the firm will produce at the quantity where its marginal cost equals the market price. On the other hand, a monopolist has some degree of market power and can set their own price. To maximize profit, a monopolist will produce where marginal cost equals marginal revenue, but since the demand curve slopes downwards and intersects the marginal revenue curve at a lower price than the monopolist's marginal cost, the monopolist produces at a lower quantity and higher price compared to a perfectly competitive firm. Therefore, the statement "marginal cost equals price, while a monopolist produces where price exceeds marginal cost" is true for a perfectly competitive firm and false for a monopolist.

A Perfectly Competitive Firm Produces Where