In a perfectly competitive market: There is productive efficiency- because costs must be kept at a minimum to break even. There is allocative efficiency- producers will produce no more or less than consumers demand at a given price. There is NOT dynamic efficiency-as there is perfect knowledge, there is no incentive for R&D. Types of Market Failure ======================= 1. Monopoly Power ================= * A monopoly exists of there is only one firm or supplier in the economy * A firm holds a monopoly share if it holds a market share that exceeds 25%.
Introduction Perfect competition is a very rare type of market and so competitive that it negates the impact any one buyer or seller could have on the market price. The products or services sold are exactly the same and are all the same price. Firms earn only a normal profit and in the event firms started to earn more than that, other firms will enter the market and drive the price level down until only a normal profit could be made. Even the technology used is the same throughout all the companies. Monopoly Monopoly is a sole player and a single monopoly is seen as one organization that holds 100% of a certain market share.
There are so many firms in the industry that each one producers an insignificantly small portion of total industry supply , and therefore has no power whatsoever to affect the price of the product since if firms rise the price, customers can choose another firm to consume which are lots of firm in market. Therefore, it faces a horizontal demand ‘curve’ at the market price: the price determined by the interaction of demand and supply in the whole market. Price and output in the short run under perfect competition Figure 1 (Riley 2012) Output can only be adjusted when the profit is not the greatest, it will change the output in order
Distinguish Between the main Features of Perfect Competition and Monopoly Market Structure There are three main features that distinguish between a perfect competition and monopoly market structure: the type of firm, the freedom of entry and the nature of the product (Sloman and Norris 1999, pg, 161). A table of these features is contained in Appendix A. These two market structures are on opposite ends of the scale and consequently, the features and benefits of each structure vary quite dramatically. Firms In a perfectly competitive market structure, there must be many firms in the market competing for business. In contrast to this, within a monopoly there is only one firm operating in the market.
No single firm can influence market price in a competitive industry; therefore a firm’s demand curve is perfectly elastic and price equals marginal revenue. Short-run profit maximization by a competitive firm can be analyzed by comparing total revenue and total cost or applying marginal analysis. A firm maximizes its short-run profit by producing that output at which total revenue exceeds total cost by the greatest amount. A complete firm maximizes profit or minimizes loss in the short run by producing that output at which price or marginal revenue equals marginal cost, provided price exceeds minimum average v...
Perfect competition involves unlimited demand, many buyers and sellers, businesses being price takers and not price makers and everyone having perfect technology to produce their goods or supplying their services. Competition is the best way for the public good. The prices are low as companies try to distinguish themselves from the rest of the market and therefore lowering prices to stand out which is good for the consumer. Everyone is awarded for hard work, as there is no monopoly to have an unfair advantage in the market, which is good for businesses. When there is perfect competition everyone is treated fairly.
In a monopoly the average revenue curve slopes downward, and the demand curve is very inelastic. Both monopolies and perfect competitions want to maximize profits, although monopolistic prices are usually higher. A pure monopoly is rare like a perfectly competitive market, but there are elements of monopolies in some markets. In this paper I will go into detail about both of these markets. A Perfect competition is a market structure made up of many firms, none of which are large enough to influence the industry (Economics online).
Part (A) (1) The conditions of perfect competition are: 1. There must be many firms in the market, and each of them is small in terms of sales comparing to the total market. Thus, firms are price-takers because they cannot affect the market price. 2. All firms in the market produce non-differentiated or homogeneous products.
In this type of market the barrier of entry is very low. Basically in order to enter and become a perfectly competitive firm the investor usually only requires sufficient financial capital and a license or permit. Perfectly competitive firms are price-takers. They are care price-taker characterized by accepting the price the market sets on their product or service, and have no control over the change of
It is also in a monopoly structure where only a single seller enjoys the profits alone. Oligopoly is different from the other structures in that it is only where we have sellers who can cooperate together since forming cartels means they are ready to communicate so as to control the price of the product. The perfect competition market structure is different from the rest since it is only where both the sellers and the buyers have a perfect knowledge of the market. The market structure I