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Imperfect Competition - Coggle Diagram
Imperfect Competition
Characteristics: Monopolistic Competition
Easy entry / exit
Non-price competition, ie advertising
Product differentiation
Relatively large number of sellers
Monopolistic Competition and Efficiency
Allocative inefficiency = P > MC
Efficiency will be where the firm produces the right amount of the product
Productive inefficiency = P > minimum ATC
They are neither productive or allocative efficient
Long Run
Normal Profit
Firms produce where MR = MC
Firms will enter when economic profits are realised
Firms wil exit when they have economic losses
Measures of Market Concentration
Four-Firm Concentration Ratio
High in Oligopoly and pure monopoly
Oligopolies where market share is more than 40% of the industry
Dividing output of the four largest firms by the total output in the industry
Herfindahl Index
Sum of squared percentage market share of all the firms in the industry
Two types of firms that closely approximate many markets in the world:
Oligopoly
Blends a large amount of monopoly power with considerable rivalry among existing firms
Monopolistic Competition
Mixes a small amount of monopoly power with a large amount of competition