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Market Models - Coggle Diagram
Market Models
Monopolistic competition
Characteristics
Many firms
Smaller market shares
No collusion
Independent action
Differentiated product
Product attributes
Service
Location
Brand name & packaging
Some control over price
Some limited control over price
Relatively easy entry/exit to market
Some Nonprice competition: advertising/brand names/Trademarks
Degree of industry concentration measure
Four-firm concentration ratio
Herfindahl index
Price & output
Short run
Profit
MR=MC: Price > ATC, AVC
Loss
MR=MC: AVC < Price < ATC
Long run
Only normal profit
Efficiency
No productive or allocative efficiency
Excess capacity
Pure competition
Characteristics
Very large number of firms
Standardized product
No control over product price
No barriers to entry/exit
No nonprice competition
Standard for evaluating efficiency in other markets
Profit maximisation models
TR-TC approach
Profit: TR > TC
Loss: TR < TC
Profit maximum: Maximum difference in TR-TC
Break-even point: TR=TC
MR-MC approach
Profit-maximising case
MR=MC: Price > ATC & AVC
Loss minimising case
MR=MC: AVC < Price < ATC
Shut-down case
MR=MC: Price < ATC & AVC
Indifferent to operating/shutting down
MR=MC: Price=AVC but < ATC
Break-even
MR=MC: TR=TC
Monopoly
Characteristics
One firm
Unique product
Considerable price control
Entry blocked
Nonprice competition mainly advertising
Oligopoly
Characteristics
Few
Standardized/differentiated product
No price control when inter-dependent/Much price control when collusion
Significant barriers to entry
Great amount of nonprice competition