This is a good and fun question that I am still scratching my head oever.

We know monopoly's profit maximisation is MC=MR. We also know that perfect competition's profit maximising criteria is such that P=MC.

Just what exactly does this mean?
I know for one that, the firm tries to maxmise profit as a whole and not just per unit profit.

This question is already answered me . Please go through the question and answer of last ten days and you will get the answer.

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Bot Bot answered
1 year ago

In short, the difference between monopoly and perfect competition is that in a monopoly, the firm is the only seller in the market and can set prices, while in perfect competition, there are many sellers in the market and prices are determined by the market forces of supply and demand. In a monopoly, the firm maximizes profits by setting the price at the point where marginal cost (MC) equals marginal revenue (MR). In perfect competition, the firm maximizes profits by setting the price at the point where price (P) equals marginal cost (MC).

Explain Bot Explain Bot answered
8 months ago

To understand the profit maximization criteria in monopoly and perfect competition, let's break down what MC, MR, and P represent in each scenario.

In monopoly, a single firm has control over the entire market, meaning it faces a downward-sloping demand curve. The profit maximization condition for a monopoly is MC = MR. Here's what each term signifies:

1. MC (Marginal Cost): MC represents the additional cost incurred by producing one more unit of output. It is the change in total cost divided by the change in quantity. In other words, it measures the cost of producing an additional unit.

2. MR (Marginal Revenue): MR represents the additional revenue gained by selling one more unit of output. It is the change in total revenue divided by the change in quantity. In a monopoly, since the firm is the sole producer, the marginal revenue earned from selling an additional unit is equal to the price of that unit.

By equating MC and MR, a monopoly firm maximizes its profit by producing where the extra cost of producing one more unit is exactly offset by the extra revenue gained from selling that unit.

On the other hand, in perfect competition, there are many small firms competing against each other in a market. Each firm in perfect competition is a price taker, meaning it cannot influence the market price. The profit maximization condition for a competitive firm is P = MC. Here's what each term represents:

1. P (Price): In perfect competition, the price is determined by the market forces of supply and demand. Each individual firm has no control over the price and must accept the market price as given.

2. MC (Marginal Cost): Similar to monopoly, MC in perfect competition represents the additional cost incurred by producing one more unit of output. It measures the cost of producing an additional unit.

By setting price equal to marginal cost (P = MC), a competitive firm maximizes its profit by producing at a level where selling an additional unit adds exactly as much to revenue as it does to cost.

To summarize, in monopoly, the profit maximization criteria is MC = MR, and in perfect competition, it is P = MC. The difference lies in the ability of the firms to control the price. Monopolies can set their price above marginal cost, while competitive firms must accept the market price as given.

Step-by-Step Bot Step-by-Step Bot answered
8 months ago

Profit maximization in monopoly and perfect competition refers to the goal of the firm to maximize its overall profit.

In monopoly, the profit-maximizing condition is given by MC = MR, which means that the firm should set its marginal cost (MC) equal to its marginal revenue (MR). This condition determines the level of output at which the firm can maximize its profit. By setting the MC equal to MR, the firm is essentially finding the quantity of output where the additional cost of producing an extra unit is equal to the additional revenue generated from selling that unit. This ensures that the firm is producing at the efficient level, where the cost of production is balanced with the revenue received.

In perfect competition, the profit-maximizing condition is slightly different and given by P = MC, where the firm should set the price (P) equal to its marginal cost (MC). In perfect competition, there are many firms competing in the market, and they are price takers, meaning they have no control over the market price. Therefore, to maximize profit, the firm needs to set its price equal to its marginal cost. This condition ensures that the firm is producing at a level where the cost of production is equal to the price received in the market, resulting in maximum profit.

In summary, both monopoly and perfect competition aim to maximize their overall profit, but the specific conditions for profit maximization differ. In monopoly, the firm sets MC = MR, while in perfect competition, the firm sets P = MC.