Competitive Market vs. Monopolisitc Pricing
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A FIRM IN A COMPETITIVE MARKET MODEL TENDS TO MAKE ZERO ECONOMIC PROFITS WHEN CHARGING A PROFIT MAXIMIZING PRICE AND A MONOPOLIST HAS NO LIMIT TO THE AMOUNT OF PROFITS THAT CAN BE EARNED WHEN THEY CHARGE THE PROFIT MAXIMIZING PRICE.
WHY IS THAT?
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Solution Summary
The solution tries to explain the following: A FIRM IN A COMPETITIVE MARKET MODEL TENDS TO MAKE ZERO ECONOMIC PROFITS WHEN CHARGING A PROFIT MAXIMIZING PRICE AND A MONOPOLIST HAS NO LIMIT TO THE AMOUNT OF PROFITS THAT CAN BE EARNED WHEN THEY CHARGE THE PROFIT MAXIMIZING PRICE.
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In a competitive market, all firms are price takers. They have no power to determine the price of their product. There are also no barriers to entry and exit. So firms will leave the market if ...
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