Which of the following is a major difference between monopolists and firms in perfectly competitive markets?

a. Monopolists ensure greater consumer welfare, while firms in perfectly competitive markets do not,

b. Monopolists are price takers, while firms in perfectly competitive markets are price makers,

c. Monopolists can earn a short-run profit, while firms in perfectly competitive markets cannot,

d. Monopolists may earn a long-run economic profit, while firms in perfectly competitive markets cannot,

e. Monopolists maximize profit, while firms in perfectly competitive markets maximize sales.

The correct answer is d. Monopolists may earn a long-run economic profit, while firms in perfectly competitive markets cannot.

The different barriers to entry into the market and product substitutability are the reasons that lead us to the answer. First, in a monopoly, the barriers to entry are very high and there is not product substitutability. Therefore, in the long run, new firms cannot enter the market. Additionally, monopolists can limit the supply (due to the lack of substitutes) in the long run and increase the price to earn economic profits. In contrast, in the perfect competition, the barriers to entry are very low and there are plenty of substitute products. The low barriers to entry allow new competitors to enter the market if there are economic profits. Thus, the supply of a product increases which results in a decreasing product price until the economic profits are equal to zero.

In a monopoly, consumer welfare can be minimized depending on the monopolist's strategy. On the other hand, there are some economists that state that perfect competition leads to a maximization of consumer welfare. Monopolists are price markers and perfectly competitive firms are price makers. In perfect competition, the firms can earn economic profits in the short run. An in perfect competition there is also profit maximization (MR=MC).