Characteristics Of Perfect Competition Economics Essay

Characteristics Of sodding(a) Competition Economics EssayMonopoly is a grocery store organize that is the yet sole vendor of a product and large come of buyers that cod no close renewal and have a extravagantly entry and vent barrier. A monopoly marthas no other unfluctuatings fag end inclose the trade and compete with it to establish some good or service. For an lawsuit that gave by Vengedasalam, D., et. al. (2008, p.229) If require to subscribe television channel services, the only unity impart go is Astro. But if want to use Astro services, it have several(a) options to choose from, and this assiduity is non a monopoly merchandise.2.1 Characteristics of MonopolySingle seller in the mart Monopoly is a bell cleric in the firm which has the military force to dominance the footing. In the proof of the assistant theorem Jackson, J. (1998, p.22.5), price maker is a seller of a commodity that is fitting to instill the price at which a commodity sells by eve r-changing the amount it sells.No reason out SubstitutesIt means customer or buyers could non find any embossment for the product. If the buyer can find out, in that respectfore this product is no much in monopoly. In others way to describe, a monopoly cannot exist if there is a ambition or any transpose product.Restriction of entry of innovative firms In a monopoly market, there be strict barriers to the entry of unseasoned firms. Barriers to entry are natural of wake little restrictions that restrict the entry of untried firms into the fabrication.Average and Marginal Revenue Curves Under monopoly, average revenue is greater than marginal revenue. Under monopoly, if the firm wants to increase the deal it can do so only when it reduces its price.2.2 Types of Monopoly2.2.1 Natural MonopoliesOne firm can produce at a lower constitute compared to what two or more firms could produce.2.2.2 Government- Created MonopoliesGovernment creates monopolies to prevent firms fr om entering into a market. This can be make through difficulty in obtaining license to operate in the market or providing patent and copyrights to a monopoly firms. There are some legal barriers that are government franchise, government license, patent, copyright and tally over novel material.2.3 Monopolys RevenueA monopolists marginal revenue is continuously less than the price of its good. (According from N. Gregory Mankiw, principle of microeconomics fourth edition pg. 317), shows the example how the monopolys revenue might front on the amount of water produced.CUsersTOSHIBADesktop123.jpgTable 1 A monopolys Total, Average, and Marginal RevenueTable 1 shows a result that is grave for understanding monopoly behavior A monopolists marginal revenue is always less than the price of its good. For monopoly, marginal revenue is lower than price because a monopoly only faces a downward-sloping demand writhe ball.CUsersTOSHIBADesktop123a.jpg recruit 3 contain and Marginal-Revenue Curves for a MonopolyThe demand curve shows how the quantity affects the price of a good. The marginal-revenue curve shows how the firms revenue changes when the quantity increases by 1 unit. Marginal revenue is always less than the price because the price on all units sold moldiness fall if the monopoly increases production2.4 Profit MaximizationIn this graph shows the make headway maximization for a monopoly. The tip of A is the intersection of the marginal-revenue curve and the marginal-cost curve specializes the expediency-maximizing quantity. All this curves contain all the information we need to determine the level rig that a profit-maximizing monopolist will choose.CUsersTOSHIBADesktop123b.jpgFigure 4 Profit Maximization for a monopolyA monopoly maximizes profit by choosing the quantity at which marginal revenue equals marginal cost (point A). It thenuses the demand curve to find the price that will perk up consumers to buy that quantity (point B). Thus, the monopolist s profit-maximizing quantity of output is determined by the intersection of the marginal-revenue curve and the marginal-cost curve.2.4.1 A Monopolys ProfitCUsersTOSHIBADesktopMicro Assignment diagram20130222_121054.jpgFigure 5 The monopolists ProfitThe area of the shock BCDE equals the profit of the monopoly firm. The height of the box (BC) is price minus average total cost, which equals profit per unit old. The breadth of the box (DC) is the material body of units sold.3.0 Characteristics of Market StructuresIn a perfectly private-enterprise(a) market, the market structure is an interconnected feature or characteristics in which will affect the nature of competition and the price. For example, the volume and relative strength of buyers and sellers, the academic degree of collusion among them, level and forms of competition, the extent of product unlikeiation, and the ease of entry into and retail store from the market. Market structures refer to the competitive environment wi thin which a firm operates. Market structures divided into four basic types which is perfect competition, monopolistic competition, oligopoly and monopoly.3.1 Perfect CompetitionPerfect competitive is defined as a market in which there are many buyers and sellers, the products of merchandising are solid, and sellers can easily enter and exit from the market.3.2.1 Characteristics of Perfect CompetitionLarge number of buyers and sellers Reynolds, R. L., (2005, p.2) points out that the idealized perfect competitive insures that no buyers and sellers has any precedent or ability to influence the price. The perfect competitive market is price takers.Products of selling are analogous The firm must sell homogeneous product. The products are where the buyers could not particularize the products of one seller to another seller. hands-down enter and exit From the research of Salvatore, D. (2009, p.245) demonstrated that resources or inputs are on the loose(p) to move among the various in dustries and locations within the market response to monetary incentives. So, there are no artificial barriers to entry into and exit from the industry.Perfect familiarity Both of the sellers and buyers have perfect knowledge of the market. Sellers and buyers cannot influence with each others.Both of them must know the market price of the goods as given.Non-price competition Microeconomics, 2008 Author Dviga Vengedasalam, Karunagaran Madhavan, Rohana Kamaruddin point out the role of non-price competition is insignificant since many sellers sell the products at a fixed price and furthermore, the products are identical. The firms have no control over the price and their gods are identical, so there is no selling cost.3.3 MonopolyMonopoly is single seller in which sell the product is unique. Thus, there are large number of buyers and selling the products that have no close substitution and have high barriers betwixt entry and exit. For an example that gave by Vengedasalam, D., et. al . (2008, p.229) If want to subscribe home telephone services, the only one will go is Telekom Malaysia.3.3.1 Characteristics of MonopolySingle seller in the market Monopoly is a price maker in the firm which has the power to control the price. In the proof of the auxiliary theorem Jackson, J. (1998, p.22.5), price maker is a seller of a commodity that is able to affect the price at which a commodity sells by changing the amount it sells.No Close Substitutes It means customer or buyers could not find any substitute for the product. If the buyer can find out, then this product is no more in monopoly. In others way to describe, a monopoly cannot exist if there is a competition or any substitute product.Strong barriers to the entry into the industry exist In a monopoly market there is strong barrier on the entry of new firms. monopoliser faces no competition. The monopolist has absolute control over the production and sale of the commodity certain economic barriers are imposed on the e ntry.3.4 noncompetitive CompetitionMicroeconomics, 2008 Author Dviga Vengedasalam, Karunagaran Madhavan, Rohana Kamaruddin points out that the Monopolistic competition is a market structure in which there are large numbers of teentsy sellers differentiated products precisely these are close substitute products and have piano entry into and exit from the market.3.4.1 Characteristics of Monopolistic CompetitionLarge numbers of seller and buyers It is less as compared to perfect competition. Because, monopolistic competition will produces different or unique products, so that they will have some control over the prices. Hence, each firm will follows an independent of the price output policy.Product differentiationEach firm produces a product that is at least slightly different from those of other firms. For example, if coffee is sold in coffee pack only, then it is perfect competition. But, if the same coffee is b put up with chocolate packaged in a box and label as Choco-Coffee, then this product is in monopolistic competition.Easy entry and exitThis is freedom to entry of new firms, but it is not as motiveless as perfect competition because it needs to make some differentiate product enter the monopolistic competition.3.5 OligopolyAccording to the preservearticles.com, Oligopoly is often referred to as competition among the few. In brief oligopoly is a kind of imperfect market where there are a few firm in the market, producing either and homogeneous product or producing product which are close but not perfect substitutes of each other.3.5.1 Characteristics of Oligopolyfew numbers of firms The firms are few but the size of firms is large. In few firms will control the overall industry under oligopoly. For example of the oligopoly which is Unisem and Carsem.Homogeneous and differentiated product The firms in an oligopolistic industry may produce standardized or differentiated products. For example, DIGI or U-mobile produced by one firm is identical to anot her firm.Mutual interdependence The source further stated that oligopoly always consider in choosing price, sales target, advertisement budgets and other.Price rigidityAccording to the preservearticles.com, there is the existence price rigidity. Prices lend to be rigid and sticky. If any firm makes a price-cut it is immediately retaliated by the rival firms by the same practice of price-cut. There occurs a price-war in the oligopolistic condition.3.7The Differences between the various characteristics with the four types of market structureThe various characteristics between the four types of market structure which are Perfect Competition, Monopolistic Competition, Oligopoly and Monopoly have been discussed. The most important of these characteristics are differentiate in which will affect the nature of competition and the price. Therefore, table 2 shows the differentiation of the characteristics of the following market structure.Perfect CompetitionMonopolistic CompetitionOligopoly MonopolyBarriers to entry upsetLowHighVery HighNumber of ProducersManyManyFewOneTypes of productStandardizeddistinguishStandardized or DifferentiatedUniqueExampleFruit Vegetables100 PlusCarsemAstroTable 2 Characteristics of market structure4.0 Conclusion and RecommendationAs my conclusion, I recall that monopoly is the best in microeconomic. This is because monopoly is a form that is the sole seller of a product without close substitutes. It remains other firms cannot enter the market and fill out with it.