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Home Price and Output Determination Under Monopoly Comparison Between Monopoly and Competitive Equilibrium

Comparison Between Monopoly and Competitive Equilibrium or Perfect Competition:

 

The main points of difference and similarities of monopoly model with competitive model are as follows:

 

Monopoly Perfect Competition or Competitive Equilibrium

(1) The firm is in equilibrium at that level of output where MR equals MC.

 

(1) The most profitable output is also at a point where MR is equal to MC.

 

(2) The AR and MR curves are negatively inclined i.e., a firm can sell more goods at lower and fewer goods at higher prices. The MR curve ties below the AR curve.

 

(2) The AR and MR curves facing competitive producer are perfectly elastic, i.e., it is a horizontal straight line. A firm cannot alter the market price by selling more or by selling less. The AR and MR curves are equal and, therefore, coincide.

 

(3) The monopolist can earn supernormal profits in the short as well as in the long period. The firm need not equate the AR to  the lowest point of AC in the long run.

 

(3) The firm can earn abnormal profits in the short run but in the long run only normal profits are earned. The firm is in equilibrium when MR = MC = AR = Minimum AC in the long run.

 

(4) As the production of a commodity is in the hands of a single producer, therefore, a firm has control over the output and  price of the commodity.

 

(4) The competitive producer has no control over the price of the commodity. It has to sell at the price determined by the intersection of the forces of demand and supply in the market.

 

(5) The single firm comprises the whole industry. The firm may not be of the optimum size. The possibility of the new firms to enter into the industry, is restricted.

 

(5) There are many firms comprising an industry. All the firms are of the optimum size in the long run. The new firms can enter the industry.

 

(6) The equilibrium price is higher than MC. The monopolist always tries to maximize profits by fixing the price higher than the competitive price. The consumers, therefore, have to pay a higher price and thus stand at a disadvantage.

 

(6) The equilibrium price is equal to MC. The entrepreneur charges the price which gives him the normal profit in the long run. So customers do not stand at a disadvantage.

 

(7) The monopoly firm is a price seeker.

 

(7) The competitive firm is a price taker.

 

(8) A monopoly firm is not a price taker. Hence, it cannot have a supply curve. It chooses output and price in a way that gives. It the highest possible profit.

 

(8) A competitive firm cannot exert any influence on the price. The firm is a price taker and so has a supply curve. The portion of MC curve above AVC curve is supplied.

 

 

Relevant Articles:

 

What is Monopoly
Conditions/Base of Monopoly Power
Monopolist's Demand Curve
Short Run Equilibrium Price and Output Under Monopoly
Long Run Equilibrium Under Monopoly
Comparison Between Monopoly and Competitive Equilibrium or Perfect Competition
Misconceptions Concerning Monopoly Pricing
Monopoly Regulations
Monopoly Price Discrimination
Price and Output Determination Under Discrimination Monopoly
Assessment of Discriminating Monopoly or Price Discrimination
Dumping
 

Principles and Theories of Micro Economics
Definition and Explanation of Economics
Theory of Consumer Behavior
Indifference Curve Analysis of Consumer's Equilibrium
Theory of Demand
Theory of Supply
Elasticity of Demand
Elasticity of Supply
Equilibrium of Demand and Supply
Economic Resources
Scale of Production
Laws of Returns
Production Function
Cost Analysis
Various Revenue Concepts
Price and output Determination Under Perfect Competition
Price and Output Determination Under Monopoly
Price and Output Determination Under Monopolistic/Imperfect Competition
Theory of Factor Pricing OR Theory of Distribution
Rent
Wages
Interest
Profits
Principles and Theories of Macro Economics
National Income and Its Measurement
Principles of Public Finance
Public Revenue and Taxation
National Debt and Income Determination
Fiscal Policy
Determinants of the Level of National Income and Employment
Determination of National Income
Theories of Employment
Theory of International Trade
Balance of Payments
Commercial Policy
Development and Planning Economics
Introduction to Development Economics
Features of Developing Countries
Economic Development and Economic Growth
Theories of Under Development
Theories of Economic Growth
Agriculture and Economic Development
Monetary Economics and Public Finance
History of Money

 

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