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Economics 11 Unit 4 - Perfect and Imperfect Competition - Coggle Diagram
Economics 11 Unit 4 - Perfect and Imperfect Competition
Perfect Competition
Conditions for purely competitive markets
Price takers. Small share of total market.
Demand as seen by a purely competitive seller
Purely elastic demand.
Imperfect Competition
Monopolistic competition and profit in the long run
In the long run, firms will only earn a normal profit i.e. break even.
Productive efficiency
When the firms price is equal to its minimum ATC of producing a product - productive efficiency exists.
Characteristics of monopolistic competition
Monopolistic competition mixes a small amount of monopoly power with a large amount of competition.
Allocative efficiency
In order to achieve allocative efficiency, a firm must produce at a price that is equal to the marginal cost of production.
Profit Maximisation
MR - MC approach
3 Questions:
If yes to 1. What amount should be produced?
What economic profit or loss will be realised?
Should firm produce in the short run?
Marginal cost curve
Profit maximised when MR = MC
Profit maximised when MR = P
TR - TC Approach
3 Questions:
If yes to 1. What amount should be produced?
Is it necessary to calculate the profit or loss for the firm?
Should firm need to produce in short run?
Four basic market models
Monopolistic competition
Many firms. Differentiated products. Some/limited control over prices. Relatively easy to enter or exit. Considerable non-price competition.
Oligopoly
Few firms. Standardised or differentiated products. Limited control over price unless by collusion then considerable. Significant obstacles to entry. Typically a great deal of non-price competition.
Pure competition
A large number of firms. Standardised products. No control over price. Very east to enter or exit. No non-price competition.
Monopoly
One firm. Unique product. Considerable control over price. Entry blocked. Non-price competition - advertising limited to PR.