Thursday 12 April 2012

Comparing Market structures


In perfect competition market a firm will operate at allocative efficiency, where MC =P.



























Monopolistic competition – a firm will operate at a profit maximizing output, where MC=MR. Profits are normal with P1. With new players coming the demand will decline and profits decrease – P2 and eventually will come to P=AC – economic profit.


























Oligopoly
With collusive oligopoly the chart will look like the one with monopolistic market, where MC=MR (profit maximizing output)
With non-collusive oligopoly – kinked demand curve. With very stabilized priced increase in MC is absorbed by a manufacturer. With P2=AC the manufacturer will operate with economic profit only.


























A monopolist will operate at a profit maximizing price and output, where MC=MR.

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