Answer to Question #169258 in Microeconomics for EUGINE HAWEZA

Question

Write short notes on the following:

a)Perfectly competitive market

b)Monopoly

c)Monopolistic

d)Oligopoly

Answer 1

a)Perfectly competitive market

There are few, if any, barriers to entry for new businesses, and rates are set by supply and demand.

Perfect competition is characterized by a large number of buyers and sellers, as well as a large number of related goods and, as a result, many substitutes.

• Perfect competition is a market system in which both producers and consumers have complete and symmetric knowledge, there are no transaction costs, and a large number of producers and consumers compete with one another.
• In a perfectly competitive market, a company can make a profit in the short term.
• In a competitive market, a firm's aim is to raise profits.
• If a firm's price exceeds its average variable cost, it can continue to function even if it has a negative economic benefit in the short term. If the price falls below its average variable cost, it should be shut down.

b)Monopoly

A monopoly is a market arrangement in which one individual or company is the sole supplier of a particular product.

• Monopoly occurs when a single person or company has sufficient power over a product or service to greatly influence the conditions by which other people may use it.
• Monopoly has two consequences: first, it reduces the number of options open to individuals. And on the other hand, raises the question of social responsibility. There is no competition; there is only one seller or manufacturer of the products, and a new competitor's entry into this market is extremely difficult due to the existence of the goods and capital, high prices, and government regulations.
• Benefit maximizer, price producer, high barriers to entry, sole seller, and price discrimination are all characteristics of a monopoly.
• Economies of size, capital requirements, technical dominance, no replacement products, ownership of natural resources, legal barriers, and deliberate counter-actions are all sources of monopoly power.

c)Monopolistic

This is a form of imperfect competition in which a large number of producers compete against one another, but sell goods that are distinct from one another and therefore are not perfect substitutes.

• A market system dominated by a large number of relatively small companies is known as monopolistic competition. Although the products manufactured by the companies in the industry are identical, there are also minor variations.
• Firms can act like monopolies in the short run in monopolistic competition, including using market power to produce profit. In the long term, as more companies join the industry, the advantages of distinction diminish.
• Monopolistic competition is characterized by a large number of small firms, similar but not identical goods, reasonable but not perfect resource mobility, and comprehensive but not perfect knowledge of prices and technology.
• Furthermore, in monopolistic competition, companies are free to join or leave the industry, and there is competition on product quality, price, and marketing.

d)Oligopoly

Oligopoly is a market situation in which a small number of companies offer homogeneous or differentiated goods. This can be interpreted as an imperfect competition market model that assumes the existence of only a few companies in a sector or industry, at least some of which have a significant market share and can thus influence market output prices.

• An oligopoly, like a monopoly, has high barriers to entry; the goods that oligopolistic firms manufacture are often almost similar, and as a result of market forces, the businesses vying for market share are interdependent.
• In order to maximize industry profits, firms in an oligopoly can collude to set a price or production level for a market.
• Oligopolistic markets would generate more than a monopolist and charge a lower price if they pursued their own self-interest.