Discuss the pricing system of perfectly competitive firm and a monopolist firm?

Question

Discuss the pricing system of perfectly competitive firm and a monopolist firm?

Answer 1

A Monopolistic firm is a price seeker meaning they find the level of production that is most profitable for them and charge people basically whatever they want within reason.  If they charge too much, the demand will decrease leading to a surplus.  They charge not enough and they will constantly be sold out.  There is not free entry as there are laws, patents and copyrights protecting these firms.

A perfectly competitive firm is a price taker.  This market has free entry and exit.  They sell standardized products making the demand for these products elastic.  For example, a rubber band is a rubber band.  People don't go searching for name brand rubber bands.  In order to make a profit, a competitive firm is smart to follow the market price.

Answer 2

In both cases profit maximizing condition follows MR=MC rule, the only difference is that purely competitive firm is price-taker and monopolist sets price.