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CA Foundation · Business Economics · Price Determination in Different Markets

A monopolist has the demand function P = 120 - 2Q and total cost TC = 200 + 20Q. A perfectly competitive industry with the same marginal cost of ₹20 would produce where P = MC. By how many units is the monopolist's profit-maximising output lower than the competitive output?

The monopolist produces 25 units fewer. Monopoly output sets MR = 120 - 4Q equal to MC of 20, giving 25 units. Competitive output sets price 120 - 2Q equal to 20, giving 50 units. The difference is 25 units, showing the monopoly output restriction.

  1. A25 unitsCorrect
  2. B50 units
  3. C75 units
  4. D100 units

Explanation

Monopoly: MR = 120 - 4Q = 20 gives Q = 25. Competitive: P = MC gives 120 - 2Q = 20, so Q = 50. Difference = 50 - 25 = 25 units. Using 50 as the monopoly output would wrongly ignore that MR has twice the slope of demand.

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