Which of the following is a characteristic shared by a perfectly competitive firm and a monopoly?

• A. Both face a perfectly elastic demand curve.
• B. Both seek to maximize profit by producing where marginal cost equals marginal revenue.
• C. Both are price takers in the market.
• D. Both have many sellers offering identical products.

Answer: (B)

Verified step by step guidance

1. Understand the market structures: A perfectly competitive firm operates in a market with many sellers offering identical products and faces a perfectly elastic demand curve, meaning it is a price taker. A monopoly, on the other hand, is the sole seller in the market and faces the entire market demand curve, which is typically downward sloping.
2. Recall the profit maximization rule: Both perfectly competitive firms and monopolies aim to maximize profit by producing the quantity where marginal cost (MC) equals marginal revenue (MR). This is a fundamental principle in microeconomics for profit maximization regardless of market structure.
3. Analyze the demand curve faced by each firm: A perfectly competitive firm faces a horizontal (perfectly elastic) demand curve at the market price, while a monopoly faces a downward sloping demand curve, meaning it has some control over the price.
4. Evaluate the price-taking behavior: Perfectly competitive firms are price takers because they cannot influence the market price, whereas monopolies are price makers because they set the price based on the quantity they produce.
5. Compare the number of sellers and product differentiation: Perfect competition involves many sellers with identical products, while a monopoly has only one seller with a unique product. Therefore, the shared characteristic is the profit maximization condition where MC equals MR.