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Perfect and imperfect competition - Coggle Diagram
Perfect and imperfect competition
Four market models
Pure competition: large number of firms. Standardized product. new firms enter & exit very easily. firms accept market price.
Pure monopoly: one firm. entry to additional firms blocked. single unique product. full control over price.
Monopolistic competition: relatively large number of sellers. nonprice competition. entry and exit easy. not much control over price.
Oligopoly: few sellers. firms affected by rivals. own price input.
pure competition
Characteristics
very large numbers
standardized products
price takers
free entry and exit
Demand
perfectly elastic demand
average revenue: received by the seller when a unit is sold same as price. 2. Total revenue: multiplying price by corresponding quantity. 3. Marginal revenue: change in total revenue
maximized profits
Total revenue approach
produce the output at which total revenue exceeds total cost by the greatest amount
marginal revenue marginal cost approach
provided price exceeds minimum average variable cost. produce output at which price or marginal revenue equals marginal cost P=MC
monopolistic competition
relatively large number of sellers. 1. small market shares. 2. no collusion. 3. independent action
differentiated products.1. product attributes. 2. service. 3.lolcation. 4.brand names and packaging. 5. some
control over price.
Easy entry and exit.
advertising
four firm concentration ratio
Expressed as percentage. the ratio of output of 4 largest firms in the industry relative total industry sales.
herfidahl index the sum of the squared percentage market shares of all firms in the industry