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Perfect and imperfect competition, Imperfect competition, Large number of…
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Imperfect competition
- Pure monopoly
- Monopolistic competition
- Oligopoly
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Monopolistic competition
- Easy entry and exit allows firms to make normal profit only in the long run
- P>Minimum ATC
- P>MC
(This indicates under allocation of resources and that consumers may not receive the cheapest price due to the extra costs)
- Large number of firms
- No control over price
- Easy entry and exit
Standardised product refers to products that are identical or homogeneous. This makes other suppliers perfect substitutes for that product.Suppliers in this market are referred to as price takers as they have no control over price
Demand curve is perfectly elastic and is horizontal to the x-axis which is for the demand, demand is constantly increasing
Price can only be altered if all firms, acting independently, simultaneously reduce their supply output. This would increase prise of the standardized product
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Ways to determine level of output to realize maximum profit or minimum loss
- Compare total revenue and total cost
- Compare marginal revenue and marginal cost
(All market types)
Break-even point is the interception between total costs and total revenue, an output at which a firm makes a normal profit (total revenue = total cost) but not an economic profit.
Additional units sold are then compared, MR and MC.Producing more might add to costs rather than revenue for the suppliers.
MR>MC - Profitable to produce more
MR<MC - Avoid output in that range
MR=MC - Rule applies if the firm has a going-concern (rather produce than shutting down)
- One firm
- Sells differentiated products, no close substitutes
- Considerable control over price
- Blocked entry ( due to unique, specialised products)
- Non-price competitions - Public advertising
- few number of firms
-Standardised or differentiated products
- Limited by mutual interdependence
- Many obstacles to enter or exit the market.
- Many firms in the market
- Supplies differentiated products
- Some control over price but is limited
- Easy to enter and exit but not as easy as a purely competitive market
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Non Price Competition- Differentiation of products as well as advertising assist monopolistic competitive firms offset the long run tendency of economic profits to drop to zero
Reference: Used Textbook Mcconnell,CR.Brue,SL.Flynn,SM.(2024).Economics:Principles Problems and policies.23rd ed.New York:McGraw Hill LLC