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The diagram below shows the level of output produced and price charged in monopoly and perfect competition.1. Identify the levels of output and price charged in monopoly and perfect competition, explain. 2. Critically evaluate the merits and demerits of perfect competition. |
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Answer» 1. A firm, if it is under monopoly, will produce when its MR = MC and will charge a price which is equal to AR. It produces oq level of output and charges a price op. But if it is in perfect competition if the market would 2. Confirmed to monopoly perfect competition would charge higher prices and produce less quantity. It is argued that the monopoly firms benefit themselves at the cost of consumers. The monopolist may get a profit even in tire long run and the consumers pay more and get less quantity. But it is another argument. The profit made by the monopolist would be used for research and development and it may be useful for society in the long run in terms of new technology and new products. Moreover, due to the economies of scale the cost of the monopolist may be much lower than the cost of a firm under perfect competition. |
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