Competitive vs. Monopoly: Price and Profit Differences

Steps:

• Identify market structures: Perfect competition has many firms, identical products, free entry/exit; monopoly has one firm, barriers to entry.
• Recall pricing: In competition, price equals marginal cost (P=MC) due to many sellers; in monopoly, price exceeds MC (P>MC) for profit maximization.
• Analyze profits: Competition yields zero economic profit long-term as entry erodes supernormal profits; monopoly sustains positive economic profits due to barriers.
• Compare: Relative to monopoly, competition features lower prices and lower (normal) profits.

Why C is correct:

• Economic theory states perfect competition drives prices down to marginal cost and profits to normal levels, unlike monopoly's higher prices and supernormal profits (per microeconomics models like supply-demand equilibrium).

Why the others are wrong:

• A: Competition lowers both price and profit, not raises them.
• B: Competition lowers price but not profit relative to monopoly's supernormal gains.
• D: Competition lowers price, not raises it.

Final answer: C