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Unit 4: Perfect Competition Profit Maximisation Imperfect Competition -…
Unit 4: Perfect Competition
Profit Maximisation
Imperfect Competition
Perfect Competition
Four market models
Pure monopoly
Monopolistic Competition
Pure Competition
Oligopoly
Characteristics of four basic models
Conditions of enrty
Non price competition
Control over price
Type of product
Number of firms
Characteristics of Pure Competition
Standardized products
Price takers
Very large numbers of sellers
Easy entry and exit
Average, total and marginal revenue Formulae
Total revenue
TR=P multiplied by Q
Marginal Revenue
Extra revenue from 1 more unit( MR=change in TR/chnage in Q)
Average revenue
Revenue per unit ( AR=TR/Q=P)
Graphical presentation
Purely Competitive Demand
Perfectly elastic demand
Demand graphs as Horizontal line
Profit Maximisation
Total revenue - Total cost Approach
TR - TC Table
TR - TC Graphically
Profit maximization case( economic profit)
Break even ( normal profit)
Break-even point
Short Run Supply
Short run supply curve
Marginal Cost( MC) curve becomes short run supply curve
Marginal revenue - Marginal cost Approach
Mr - MC Table Graphically
Loss minimizing case
MR- MC Table
The Shutdown Case
Profit Maximizing in the short run
Imperfect Competition
Characteristics of monopolistic competition
Product differentiation
Easy entry and Exit
Relatively large number of sellers
Non price competition
Long Run: Only a Normal Profit
Monopolistic Competition and Efficiency
Neither Productive nor Allocative Efficiency( inefficient)
P> MC is condition for allocative ineffciency
Excess Capacity
P> min ATC is condition for productive inefficiency
Graphical Represenatation