Ch 11 - Market power: Perfect competition and monopolistic competition

**Perfect competition**

firms organise inputs/factors of production in order to produce outputs which they can sell

Perfect competition includes

Many buyers and sellers 

Homogeneous products

not possible to distinguish between products of different firms

**Subnormal profits**

When market demand is relatively low, presenting firms with a price lower than its ATC

**Natural monopoly**

When an industry in which one single firm produces all the output due to economies of scale as its average total cost is falling over a very large scale or output

Perfect resource mobility

all resources used for production can be moved from one firm to another at zero cost

Perfect information

all producers and consumers have access to all information regarding methods of production 

Freedom of entry and exist

firms can enter and exit the market at any point 

**Abnormal / supernormal profit**

When a firm in a perfectly competitive market is selling its output for price that is greater than its average total cost, then the firm earning is making a supernormal profit in the short run 

**Subnormal profits**

When market demand is relatively low, presenting firms with a price lower than its ATC

**Natural monopoly**

When an industry in which one single firm produces all the output due to economies of scale as its average total cost is falling over a very large scale or output 

A **monopoly** has the following characteristics:

* Firms can make long run supernormal profits 
* Non availability of close substitutes of the good on the market 
* High level of inefficiency 
* Singular firm that supplies the product