True or False: Monopoly prices are higher and output is lower than in pure competition.

• A. True
• B. False
• C. It depends
• D. Not necessarily

Answer: (A)

Monopoly power means the firm can influence the price. A monopolist chooses the quantity where marginal revenue equals marginal cost, then sets the price on the demand curve for that quantity. Because the demand curve is downward-sloping, MR is below the price, so the price the monopolist charges is above marginal cost. In a purely competitive market, many firms sell identical goods, price equals marginal cost, and overall output is higher. So the monopolist produces less and charges more compared with pure competition, creating a deadweight loss. True.