Question

In which of the following markets output is higher and price is lower?

• A. Perfect competition
• B. Oligopoly
• C. Monopoly
• D. All of these

Hint:

Perfect competition is the ideal market structure where firms produce the most output at the lowest possible price due to intense competition.

Answer 1

The Correct Option is A

Step 1: Understanding Market Structures:
Different market structures lead to different outcomes in terms of output levels and prices. Perfect competition is characterized by a large number of firms, free entry and exit, and homogenous products.
Step 2: Analyzing Market Types:
- Perfect competition: In this market structure, many firms compete by producing identical products. As a result, prices are driven down to the level of marginal cost, and output is maximized. Since firms cannot influence prices, they produce at a level where supply meets demand, leading to high output and low prices.
- Oligopoly: This market structure involves a small number of firms, leading to less competition. While output may be higher than in a monopoly, prices tend to be higher than in perfect competition due to the market power held by the firms.
- Monopoly: In a monopoly, a single firm controls the entire market. This firm tends to restrict output to maximize profits, leading to high prices and lower output compared to perfect competition.
Step 3: Conclusion:
In perfect competition, output is the highest and price is the lowest, making option (A) the correct answer.