An important difference between a monopoly and a competitive industry is that:
A)a monopoly earns zero profits while competitive firms earn positive economic profits in the long run.
B)a profit-maximizing monopolist equates price and marginal cost while profit-maximizing firms in competitive industries equate marginal revenue and marginal cost.
C)a monopoly is a price maker while a competitive industry faces a horizontal demand curve.
D)a monopoly has a vertical supply curve while a competitive firm's marginal cost curve is the supply curve.

Question

Quizplus · Accepted Answer

A monopoly is able to set its own price since it is the only seller in the market, thus it faces a downward sloping demand curve. On the other hand, a competitive industry consists of many small firms, with no single seller having the power to set price, and thus they face a horizontal demand curve.

An Important Difference Between a Monopoly and a Competitive Industry