Answer to Question #235453 in Economics for amanuel

Question

. Discuss in detail the difference between Perfect Competitive Market, Monopoly Market, Oligopoly Market and Monopolistic Competition Market using appropriate examples. Compare and contrast these market structures using tables.

Answer 1

A firm has monopoly power when it can influence the price of its product by changing the quantity that it is willing to sell. The extent to which an individual seller can exercise monopoly power depends on the availability of close substitutes for his product and on his share of total market sales. To have a monopoly of power, a firm does not need to be a pure monopoly. A prerequisite for monopoly power is that the demand curve for the firm's output is sloping downward, rather than horizontal, as in the case of a competitive firm. When a firm has a downward-sloping demand curve for its product, it has the ability to raise or lower the price by changing the quantity of the product it offers. For example, although the Ford Motor Company does not have a pure monopoly on the manufacture and sale of automobiles, it could have monopoly power if it could raise the price of its cars by offering fewer cars to dealers. She could do this if the demand curve for her cars was sloping downward. This could have happened if a sufficient number of Ford buyers viewed them as products that were significantly different from competitors' cars. Ford could also influence the price of cars if its share of the total supply was large enough to make cars significantly rarer or more abundant on the market during a given period.

In the extreme, the limiting case, the demand curve for a product sold by a pure monopoly is a downward market demand curve for that product. The essential difference between a monopolistic market and a competitive market lies in the ability of a particular firm in the monopolized market to influence the price received for its goods. A firm with monopoly power is a firm that, at its discretion, sets a price for its product, rather than accepting it as a given, as a market reality.

The market structure indicates the number of buyers and sellers, their shares in the total, the number of goods bought or sold, the degree of standardization of the goods, as well as the ease of entering and exiting the market. Pure monopoly and perfect competition are two extreme forms of market structure. In a pure monopoly market structure, only one firm realizes the entire market supply of a certain product, while the appearance of other firms is impossible. In the case of perfect competition, there are many firms, each with a small market share, and free entry to the industry is possible. Real market structures lie between these two extremes. Limiting cases, however, provide material for understanding many problems, which is useful for understanding intermediate options. Analysis of data related to a market structure is used to determine the likelihood that firms in the market can influence the prices of the goods they sell.