A perfectly competitive firm is said to be more efficient than a monopoly firm because

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BlackTom AI · Accepted Answer

In perfect competition price equals marginal cost (P = MC), so firms produce where P = MC; a monopoly produces where marginal revenue equals marginal cost (MR = MC) and, because MR < P for a downward‑sloping demand, a monopoly sets P > MC and produces less output. Relevant concepts: - Allocative efficiency occurs when P = MC: goods are produced up to the point where consumers’ willingness to pay equals the marginal cost of producing them. - Monopoly pricing: with a downward‑sloping demand P(Q), marginal revenue is MR = P + Q(dP/dQ); because dP/dQ < 0, MR < P. - Output comparison: perfect competition yields higher output and lower price relative to monopoly; monopoly generates deadweight loss. Step‑by‑step reasoning: 1. For a competitive firm, the firm is a price taker so P = MR. Profit maximization implies produce where MR = MC; thus P = MC at the competitive equilibrium. 2. For a monopoly, demand is P(Q). MR(Q) = P(Q) + Q·P'(Q) < P(Q). The monopoly sets MR = MC, so MC = MR < P, therefore P > MC. That implies monopoly output Qm is less than competitive output Qc (where P = MC) and price Pm is greater than Pc. 3. Because competitive production continues until P = MC, total surplus (consumer + producer) is maximized and no mutually beneficial trades are left undone; monopoly restricts output and raises price, creating deadweight loss. Why the correct option is correct: - Option (a) directly states that perfectly competitive firms charge lower prices and produce more output than monopoly firms, matching the P = MC versus P > MC result and the corresponding Q comparison. Why other options are wrong: - (b) is false: perfectly competitive firms face a perfectly elastic demand for their product (infinitely elastic), not a less elastic curve than a monopolist. - (c) is false: perfect competition assumes homogeneous products, not more differentiated ones. - (d) is irrelevant and unsupported by the market-structure logic. Conclusion: therefore the correct answer is (a), which matches the provided answer.

A perfectly competitive firm is said to be more efficient than a monopoly firm becauseSingle choice

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