Economic Market structures (perfect, monopoly & monopolistic)

A market is a perfect competition if:

There is a large number of buyers

There is a large number of sellers

The output supplied by each firm is homogeneous or identical.

Firms are price takers

There is perfect knowledge

There is freedom of entry and exit of firms from the industry

In perfect competition- SR ABNORMAL PROFITS

Under perfect competition, price or average revenue is constant and is equal to marginal revenue. P=AR=MR

In the SR, if average revenue or price is greater than average cost then a firm would earn abnormal profits.

Perfect Competition- SR LOSS

In the SR if average revenue is less than average cost, then the firm under perfect competition would incur a loss.

When losses are incurred, a perfectly competitive firm will be inclined to leave the industry- which can only happen in the long run.

Perfect Competition SR NORMAL PROFIT & LR EQUILIBRIUM

In the SR if a firm is making normal profit,where average revenue is equal to average cost no firm will be motivated to leave or enter. A firm will only make normal profits in the LR because of the freedom of entry and exit of firms. This is also represents the long run equilibrium under perfect competition.

CHARACTERISTICS OF ALL THE MARKET COMPETITIONS

MONOPOLISTIC COMPETITION LR:NORMAL PROFIT

MONOPOLY/MONOPOLIST ABNORMAL PROFIT

COMPARISON BETWEEN PERFECT AND MONOPOLISTIC COMPETITION