Diagram of Knowledge: Chapter 10 image

Pure competition

Monopoly

Oligopoly

Monopolistic

No control over price / price takers

Very easy to enter into industry and exit: no obstacles

Standardized Product

No non-price competition

A very large number of firms

Some control over price but within narrow limits

Relatively easy entry into industry

Differentiated products

Considerable emphasis on advertising, brand names and trademarks

Many firms

Purely Competitive Demand

Perfectly elastic demand

Differentiated and standardized types of products

Control over price is limited by mutual interdependence and is considerable with collusion

A few number of firms

Significant obstacles with regards to entry in this industry

A great deal of non price competition particularly with product differentiation

Products are very unique: no close subsititutes

There is considerable control over price

One firm

There are no ways to enter, the conditions of entry are blocked

Non price competition is mostly through public relations advertising

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Imperfect competition: All market structures expect pure competition

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Demand graph is horizontal

Average Revenue(Price):Total Revenue / Quantity

Total Revenue: Price * Quantity

Marginal Revenue: Change in revenue / Change in quantity

Break-even point: An output at which a firm makes a normal profit(total revenue=total cost) but not an economic profit

Profit=(P-A)*Q

The competitive producer will wish to produce at the output level where total revenue exceeds total cost by the greatest amount

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MC=MR RULE: The principle that a firm will maximize its profit(or minimize its losses) by producing the output at which Marginal Revenue and Marginal Cost are equal provided that product price is equal to or greater than average variable cost