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CMA Foundation · Fundamentals of Business Economics and Management · Forms of Market

Compared with a perfectly competitive industry having the same costs, a profit-maximising single-price monopolist will typically:

A single-price monopolist typically produces less output and charges a higher price than a competitive industry. It sets marginal revenue equal to marginal cost, and because marginal revenue is below price, output is restricted and price exceeds marginal cost, causing a welfare loss.

  1. AProduce more output and charge a lower price
  2. BProduce less output and charge a higher priceCorrect
  3. CProduce the same output at a higher price
  4. DProduce where price equals marginal cost

Explanation

A monopolist equates MR with MC, and since MR lies below price on a downward-sloping demand curve, the output is lower and price higher than the competitive P = MC outcome. This restriction of output creates a deadweight loss.

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