Can someone explain how does P and Q in a monopoly compare to P and Q in a Perfectly Competitive Market?
In: Economics
Price and quantity in a monopoly are higher and lower respectively, than in a perfectly competitive market, under the assumption that the monopoly cannot price discriminate between sellers.
In the standard monopoly case, marginal revenue falls at twice the slope of demand. This implies an intersection with marginal cost at a lower quantity than otherwise, given a constantly-rising marginal cost function.
The lower quantity is then sold for the corresponding price on the demand schedule, which is necessarily higher than the accompanying marginal cost. This is profit for the monopolist.
In a perfectly competitive market, price and quantity are determined by the intersection of marginal cost and demand. There is a lower consumer price and higher quantity provided.
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