average revenue, ML is the average cost, therefore, P’L is the profit per unit. Now thetotal profit is equal to P’L (profit per unit) multiply by OM (total output).In the short run, the monopolist has to keep an eye on the variable cost, otherwise he willstop producing. In the long run, the monopolist can change the size of plant in responseto a change in demand. In the long run, he will make adjustment in the amount of thefactors, fixed and variable, so that MR equals not only to short run MC but also long runMC.
The key points of comparison of price determination under Perfect Competition andMonopoly is as below:
The demand curve or average revenuecurve is perfectly elastic and is a horizontalstraight line.
The demand curve or average revenuecurve is relatively elastic and a downwardsloping from left to right.
The firm is in equilibrium at the levelof output where MC is equal to MR. Sincein perfect competition MR is equal to AR or price, therefore, when MC is equal toMR, it is also equal to AR or price at theequlibrium position, i.e., MC=MR=AR (Price)
The firm is in equilibrium at the levelof output where MC is equal to MR.
In equilibrium position, the pricecharged by the firm equals to MC.
In equilibrium position, the pricecharged by the firm is above MC.
The firm is in long-run equilibrium atthe minimum point of the long-run ACcurve.
The firm is in long-run equilibrium atthe point where AC curve is still decliningand has not reached the minimum point.