Which outcome is typical of a monopoly relative to a competitive market?

• A. Higher price and lower output
• B. Higher output and higher price
• C. No difference
• D. Lower price and higher output

Answer: (A)

Monopoly power lets a single seller set price above the marginal cost, so the quantity produced is limited compared to a perfectly competitive market where price is driven down to MC and firms operate at its intersection with supply. In a competitive market, many firms price-take and produce where P = MC, resulting in higher output. In a monopoly, the firm chooses quantity where marginal revenue equals marginal cost, but MR lies below the price due to the downward-sloping demand curve, so the profit-maximizing quantity is smaller. This pushes the price above the competitive level and reduces output, creating a deadweight loss.