ECON101 Lecture Notes - Lecture 20: Marginal Cost, Competitive Equilibrium, Perfect Competition
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Econ 101 lec 20 monopoly (part ii) Figure 12. 5 compares the price and quantity i n perfect competition and monopoly. The market demand curve, d, in perfect competition is the demand curve that the firm in monopoly faces. The market supply curve in perfect competition is the horizontal sum of the individual firms" marginal cost curves, s = mc. This curve is the monopoly"s marginal cost curve. Equilibrium occurs where the quantity demanded equals the quantity supplied at quantity. Equilibrium output, qm, occurs where marginal revenue equals marginal cost, mr = mc. Equilibrium price, pm, occurs on the demand curve at the profit-maximizing quantity. Compared to perfect competition, monopoly produces a smaller output and charges a higher price. Figure 12. 6(a) shows the efficiency of perfect competition. The market demand curve is t he marginal social benefit curve, msb. The market supply curve is the marginal social cost curve, msc. So competitive equilibrium is efficient: msb = msc.