-Refer to the above figure. Which of the following statements is TRUE?
A) Under perfect competition, the efficient price is charged, which is the lowest price possible (P1) while under monopoly output is too large (Q4) and price is too high (P4).
B) Under perfect competition price equals marginal cost (P3) while under monopoly price (P4) is greater than marginal cost (P1).
C) The rate of output is the same under both monopoly and perfect competition (Q1), but price is higher under monopoly (P4 rather than P1).
D) Price equals marginal cost under both monopoly and perfect competition, but output is too low under monopoly (Q1 instead of Q2).

Question

-Refer to the above figure. Which of the following statements is TRUE?
A) Under perfect competition, the efficient price is charged, which is the lowest price possible (P1) while under monopoly output is too large (Q4) and price is too high (P4). 
B) Under perfect competition price equals marginal cost (P3) while under monopoly price (P4) is greater than marginal cost (P1). 
C) The rate of output is the same under both monopoly and perfect competition (Q1), but price is higher under monopoly (P4 rather than P1). 
D) Price equals marginal cost under both monopoly and perfect competition, but output is too low under monopoly (Q1 instead of Q2).

Quizplus · Accepted Answer

B is correct because under perfect competition, price equals marginal cost, which is a condition for allocative efficiency. In contrast, a monopoly sets a price (P4) that is higher than the marginal cost (P1), leading to higher profits but less efficiency and higher prices for consumers.

-Refer to the Above Figure