Comparison between Perfect Competition and Monopoly PDF

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Perfect Competition and Monopoly

2 Comparison between Perfect Competition and Monopoly Market structures (monopolistic, monopoly, oligopoly, and perfect competition) serve excellent distinction in the markets regarding market share, the price controls, and the barriers to entry. In this assignment, we discuss comparing the two market structures, i.e., monopolistic and perfect competition (Nickolas, n.d.). A monopolistic market is a market structure that has only one firm that has power over price determinations and product supply. A monopolistic market is where a firm has full control over the market. On the other hand, a perfectly competitive (Hayes, 2020) market structure has a structure with many firms, and there is no firm with full power to control the market. In reality, no need can be termed as pure monopolistic (Tejvan Pettinger, 2019) or with pure, perfectly competitive.

Features differences between perfectly competitive and monopolistic competition Perfect competition As per the definition earlier, the perfect market has features making outstanding from the other market structures; these features include: many buyers and many sellers, have standardized products, and entry and exit are straightforward (Publisher, 2016). An example is farming.

Monopolistic competition monopolistically competitive market has almost the same feature as a perfectly competitive market structure. These features are many buyers, and many sellers, there as sight, differentiated products, and the entry or exit are made easy (Tejvan Pettinger, 2019). The market has some powers in the market control.

Demands in the market structures Perfect competition demands The perfect competition market has competitors (perfect competitor) with a demand curve different from the market curve (Publisher, 2016). Also, the demand market is horizontal with a prevailing market price

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demand and supply for perfectly competitive 160 140 140 120

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Monopolistic demand The demand curve for the monopolist is the same as the one in the market. The demand curve is a downwards sloping curve faced by the monopolist.

The monopolistic demand competitor’s demand curve is elastic due to the many substitutes of the market products.

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Revenues for the perfect and monopolist The average revenue of the perfect competitor is equal to the price. The middle curve is its horizontal demand curve, as can be seen in the graph below.

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Revenues for perfectly competitive market 70 60 50 quantity price

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Because average revenue or price has a constant value, the marginal revenue and average revenue are always equal.

For monopolists, average revenue is the same as the___14 downward-sloping market demand curve. The monopolist marginal revenue is below the demand curve because of the price (average renew), which falls as quantity increases.

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Profit –maximizing output rule The rule states that the profits are maximized when the marginal revenues equal the marginal costs. This means the output should be increase if marginal gains exceed marginal costs. And also, the work should be decreased if the marginal cost exceeds marginal revenues. a. Profit maximization for a perfect competitor

5 A graph can be used to find the profit-maximizing output(q) (11.4: Profit Maximization in a Perfectly Competitive Market, 2020). the q I found in the point where the MR=MC intersects at point p. the total profit the area of the shaded rectangle, whose width is q the height so average revenue ARA minus Average Cost(AC) at the points p and r.

Perfect competition in the long run The market has the entry and exit feature in the long run then to the point known as the breakeven point. This is where the business is entering the economic profits and is made, so the supply shifts to the right, and the prices fall. Companies leave the market where the financial losses are realized upon the supply curve's change to the left, and the prices rise. b. Monopolistic market A monopolistic market maximizes the profits at the point where the marginal revenue and marginal cost are equal. At this output, the monopolist charges the highest possible price as found using the demand curve (Profit Maximization under Monopolistic Competition Microeconomics, n.d.). Monopolists can neither meet the minimum cost pricing nor the marginal cost pricing conditions.

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Profit maximization for the monopolistic competitor The profit-maximizing quantity for a monopolistic competitor is found where the marginal revenue and marginal cost are equal (Spaulding, 2019). The price is found with the aid of the business demand curve. In the short run, a monopolistic competitor may make a profit or loss at its profit-maiming point. In the long run, the monopolistic competitor breaks even. If profits or losses are being made in the short run, new businesses enter or leave the market structure, which pushes the business demand curves leftward or right and make them less or more elastics (Spaulding, 2019). The business meets either the minimum-cost pricing or the marginal cost pricing rules since too few output units are produced.

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References 11.4: Profit Maximization in a Perfectly Competitive Market. (2020, July 1). Business LibreTexts. https://biz.libretexts.org/Courses/Lumen_Learning/Book %3A_Microeconomics_(Lumen)/11%3A_Module_8%3A_Perfect_Competition/11.4%3 A_Profit_Maximization_in_a_Perfectly_Competitive_Market#:~:text=The%20profit %2Dmaximizing%20choice%20for Hayes, A. (2020, July 1). Understanding Perfect Competition. Investopedia. https://www.investopedia.com/terms/p/perfectcompetition.asp Nickolas, S. (n.d.). Monopolistic Market vs. Perfect Competition: What’s the Difference? Investopedia. https://www.investopedia.com/ask/answers/040915/whatdifference-between-monopolistic-market-and-perfect-competition.asp#:~:text=Key %20Takeaways%3AProfit Maximization under Monopolistic Competition | Microeconomics. (n.d.). Courses.Lumenlearning.com. https://courses.lumenlearning.com/wmmicroeconomics/chapter/profit-maximization-under-monopolistic-competition/ Publisher, A. removed at request of original. (2016, June 17). 9.3 Perfect Competition in the Long Run. Open.Lib.Umn.Edu; University of Minnesota Libraries Publishing edition, 2016. This edition adapted from a work originally produced in 2012 by a publisher who has requested that it not receive attribution. https://open.lib.umn.edu/principleseconomics/chapter/9-3-perfect-competition-in-thelong-run/#:~:text=In%20a%20perfectly%20competitive%20market Spaulding, W. C. (2019). Monopolistic Competition: Short-Run Profits and Losses, and LongRun Equilibrium. Thismatter.com. https://thismatter.com/economics/monopolisticcompetition-prices-output-profits.htm Tejvan Pettinger. (2019, February 27). Monopolistic Competition – definition, diagram and examples | Economics Help. Economicshelp.org. https://www.economicshelp.org/blog/311/markets/monopolistic-competition/

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