1.) Explain why a Perfectly Competitive firm can sell as much as it wants at the
ID: 1125811 • Letter: 1
Question
1.) Explain why a Perfectly Competitive firm can sell as much as it wants at the market price but a Monopolist must lower its price to sell more. 2.) Explain why a Perfectly Competitive firm has no incentive to charge a higher or lower price than the market price. 3.) Why does a Monopolist have market power while a Perfectly Competitive firm does not? 4.) Support or refute the following statement; "Since there is only one firm in Monopoly, it follows that there are no limits to the Monopolist's market power." 5.) Why do firms in Oligopoly appear to be colluding even when it is known that they are not? 6.) Why is Game Theory uniquely suited for analyzing the Oligopoly market structure?Explanation / Answer
Question 1
A perfectly competitive firm can sell as much as it wants at the market price but a monopolist must lower its price to sell because a perfectly competitive firm, being a price taker, faces a horizontal demand curve at the provided market price.
This enables it to sell as much as it wants at the market price.
On the other hand, monopolist faces downward sloping demand curve. Due to this, if monopolist wants to sell more it has to reduce the price.
So, difference in shape of demand curve they face leads to difference in results with respect to output being sold by the perfectly competitive firm and a monopolist.
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