The following figures show the demand and cost curves of a perfectly competitive and a monopoly firm respectively. Figure 10.7
D: Average Revenue
AC: Average cost
MC: Marginal cost
MR: Marginal cost
-Refer to Figure 10.7.If the perfectly competitive industry and the monopoly produces the same quantity,then:
A)there are 10 firms in the perfectly competitive industry.
B)there are 800 firms in the perfectly competitive industry.
C)there are 1,000 firms in the perfectly competitive industry.
D)there are 2,000 firms in the perfectly competitive industry.
E)there are 100 firms in the perfectly competitive industry.

Question

The following figures show the demand and cost curves of a perfectly competitive and a monopoly firm respectively. Figure 10.7  
D: Average Revenue
AC: Average cost
MC: Marginal cost
MR: Marginal cost
-Refer to Figure 10.7.If the perfectly competitive industry and the monopoly produces the same quantity,then:
A)there are 10 firms in the perfectly competitive industry. 
B)there are 800 firms in the perfectly competitive industry. 
C)there are 1,000 firms in the perfectly competitive industry. 
D)there are 2,000 firms in the perfectly competitive industry. 
E)there are 100 firms in the perfectly competitive industry.

Quizplus · Accepted Answer

If the perfectly competitive industry and the monopoly produce the same quantity, it will be at the point where the MC = MR for both the firms. From the graph, we can see that the MC curve intersects the MR curve at the output level of 1,000 units. In a perfectly competitive industry, each firm produces a small fraction of the total output, and hence the total output would be the sum of the outputs of all the individual firms. Therefore, if each firm produces 1,000 units, then the total output would be 1,000 units multiplied by the number of firms in the industry, which would be 1,000 firms. However, the question asks for the number of firms in the industry, not the total output. Since there are 1,000 firms, the answer is C.

The Following Figures Show the Demand and Cost Curves of a Perfectly