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Perfect and Imperfect Competition - Coggle Diagram
Perfect and Imperfect Competition
Perfect Competition
Characteristics of Pure Competition
Standardized products
Price takers
Very large number of sellers
Easy entry and exit
Pure Competitive Demand
Price elasticity of demand
Firms produce as much or as little as they wish at market price
Demand graphs as horizontal line
Average Revenue
AR = TR/Q = P
Marginal Revenue
MR = :small_red_triangle:TR/ :small_red_triangle:Q
Total Revenue
TR = P x Q
Profit Maximization
The TR - TC approach
The Competitive producer will wish to produce at the output level where total revenue exceeds total cost by the greatest amount
Break-even point
The MR - MC approach
Using the MR = MC rule, for a price taker Price = Marginal revenue and the firm considers 3 questions:
If so, What amount?
What economic profit(loss) will be realized
Should the firm produce?
Loss Minimizing case
Firms still produce because MR > minimum AVC
Losses at a minimum where MR = MC
Producing adds more to revenue than cost
The Shut-down case
When P < minimum AVC
Short run supply curve
As long as P exceeds min. AVC, Firm continues to produce using MR(=p) = MC rule
Imperfect Competition
Characteristics of Monopolistic competition
Relatively large number of sellers
Easy entry and exit
Non- Price competition like advertising
Product Differentiation
Monopolistic competition inefficient
P> min AVC is condition for productive inefficiency
P> MC is condition for allocated inefficiency
Oligopoly
Possible collusion
Products are standardized and differentiated
Few firms
Less difficult entry compared to a monopoly
Monopoly
Difficult entry and exit
Unique products
One firm
Price makers