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Perfect Competition And Monopoly Are Two Extremes Of Market Structure Case Study

analytical Essay
797 words
797 words
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It occurs when there is: - Poor communication and management in a large firm - Demotivation of workers and thus loss in production - Lack of control over a large manpower spread across locations - Loss of management efficiency when the firm is large and operating in uncompetitive markets - Overpaid resources on higher packages with almost no differentiated product - Product stops being a star product for the firm and becomes a dog instead due to rise in competition, loss of market share and slow market growth. Companies tend to liquidate their assets in such case to stay alive. If a firm has constant input costs owing to factors mentioned above, then decreasing returns to scale simply suggests a rise in long run average cost and diseconomies …show more content…

In this essay, the author

  • Explains that the lrac (long run average cost) increases after q2 because of diseconomies of scale as the output is increasing, but so is the cost of output.
  • Evaluates the statement by analyzing contrasting features and equilibrium price and quantity determination process under these two types of market.
  • Explains that product stops being a star product for the firm due to rise in competition, loss of market share and slow market growth. companies tend to liquidate their assets to stay alive.
  • Explains that market is a place where sellers and buyers of products are spread. a market structure is determined by the nature of competition.
  • Explains equilibrium price, which is the point where demand and supply curves intersect. in perfect competition, buyers and sellers are fully aware of the current market price of a product.
  • Explains that demand is the quantity consumers are willing to purchase at a particular price other factors being constant.
  • Explains the law of supply, stating that supply is high at a higher price, and vice versa. op price prevails at oq quantity demanded.

2. Perfect competition and monopoly are two extremes of market structure. Evaluate the statement by analyzing contrasting features and equilibrium price and quantity determination process under these two types of market. Illustrate your discussion with the help of real world examples. Answer Structure a) What is market structure b) Perfect competition structure vs monopolistic structure: contrasting features c) Equilibrium price and quantity determination in perfect competition d) Equilibrium price and quantity determination in monopoly a) What is market structure Market is a place where sellers and buyers of a product are spread. It’s an area where a product is being sold to a set of buyers at a certain price. A market has a structure which is determined by the nature of competition in the market. Therefore, a market structure is decided by: - Number of sellers - Number of buyers - Their respective nature/type - Nature/type of product - Entry and exit conditions in the market - Economies of scale Perfect competition and Monopoly are two types of market …show more content…

In perfect competition, buyers and sellers are fully aware of the current market price of a product thus none buys or sells at an exorbitant price. Therefore, almost the same rate prevails hypothetically. Because of price discovery, transparency and open information, the market price of a product in a perfect competition is determined by the industry or the laws of demand and supply. - Law of Demand: Demand is the quantity consumers are willing to purchase at a particular price other factors being constant. Generally, demand is more when price is low and vice versa. As shown in the figure below, the demand was OQ at OP price which slips to OQ1 when price increased to OP1. Thus the demand curve is sloping downwards to right under perfect competition. - Law of Supply: It is the quantity a seller is willing to supply at a particular price. Generally, supply of a product is high at a higher price and vice versa. For example, in the figure above, the supply was OQ at OP price. When the price increased from OP to OP1, the supply increased to OQ1 indicating an increase in supply with increase in supply for the profit maximization intention of the

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