Description
Explain why both monopolies and perfectly competitive firms produce the output where MR = MC. Since MR = MC for both monopolies and perfectly competitive firms, why is the profit-maximizing price based on MR = MC higher than MC for the monopoly but equal to MC for perfect competition? Under what conditions will monopolies and perfectly competitive firms make losses, even when they are producing the profit-maximizing output? Under what conditions will they both stay in business and continue to produce in the short run, even with making losses? Explain fully why monopolies lead to a “dead weight” loss but perfect competition does not, even though both maximize profits by producing the output where MR = MC. Under what conditions will the monopoly price be lower than the perfectly competitive price, assuming that both are maximizing profits? The existence of excess capacity in monopolistic competition means that there are too many firms. Does this increase in the number of firms increase or reduce the price which consumers pay? Why or why not?
