Economics - 0418 - 370 PART 7 MARKET STRUCTURE BEYOND...

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©Reprinted with special permission of King Feature Syndicate. 370 P A R T 7 MARKET STRUCTURE: BEYOND PERFECT COMPETI TION Ua 0 KJSSUN& US. [fetal Service tdM-a l&sscn* WHOOFS! STAMP SHORTAGE! NOW THEY'RE TWOPUCKS >> Q U I C K R E V I E W > The crucial difference between a firm with market power, such as a monopolist, and a firm in a perfect- ly competitive industry is that per- fectly competitive firms are price-takers that face horizontal demand curves, but a firm with market power faces a downward- sloping demand curve. > Due to the price effect of an increase in output, the marginal rev- enue curve of a firm with market power always lies below its demand curve. So a profit-maximizing monopolist chooses the output level at which marginal cost is equal to marginal revenue n o t to price. > As a result, the monopolist produces less and sells its output at a higher price than a perfectly competitive industry would. It earns a profit in the short run and the long run.
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