What is the difference between revenue under perfect competition and monopoly?there should be four differences  atleast

1 Answer | Add Yours

krishna-agrawala's profile pic

krishna-agrawala | College Teacher | (Level 3) Valedictorian

Posted on

Are you asking difference between the way the revenue of a firm is determined under conditions of perfect competition and monopoly.

Under both these condition a firm sells as much product as it can till its marginal revenue equals marginal costs and and any further increase will result in increasing the marginal cost. However, the point at which this point is determined for a firm operating in a perfectly competitive market and a monopoly firm are different.

Under the condition of perfect competition, a single firm has no control over either the market equilibrium price or the total market demand. The firm can sell as much as it wants to at the market equilibrium price, but cannot sell any thing at prices above this price. Under this condition the marginal revenue of the firm is same as the market price, irrespective of the level of revenue. Under these condition the firm will continue to increase its profit by increasing its sale as long as the sales price, which is same as its marginal revenue, is higher than the marginal cost. Thus the company will continue to increase its revenue till its marginal cost equals market equilibrium price. This also results in the firm operating at a level that results in minimum average cost for the firm in long run.

The situation faced by the Monopoly firm is different. For a monopoly firm its marginal revenue is always less than the sales price at any level of revenue, as any increase in price reduces the total quantity sold. Thus marginal revenue falls as the total revenue increases. For this reason, for a monopoly firm, the marginal revenue equals marginal cost at a level of revenue that is less than the level where marginal cost is lower than average cost, and the firm is not producing at minimum cost.

We’ve answered 318,922 questions. We can answer yours, too.

Ask a question