Key Insights Into "Imperfect Competition" and Monopolists

Key Insights Into “Imperfect Competition”

• an imperfect competition market power allows sellers to pursue independent pricing for their goods and services
• firms face downward-sloping demand curves in an imperfect market competition   * firms do have the ability to increase the price, but it will sell less at this higher price
• more competition leads to less market power
• more competitors = more substitutes   * if you raise the price, consumers are likely to buy from competitors
• more substitutes = more elastic demand → when you raise prices, you lose sales   * firms are successful when they produce a good different than competitors

Monopolists

• $monopolist:$ only producer of a good or service
• assume that monopolists think on the margin and maximize profits   * what happens to profits if they increase production by one unit?     * are marginal revenues greater than marginal costs?
• markets characterized by a monopolist will have higher prices and lower output than markets with perfect competition   * energy companies are usually monopolies and so are electrical companies     * Comporium is an internet provider that is a monopoly
• $marginal revenue:$ the additional revenue earned when a monopolist increases production by one unit
• $marginal cost:$ additional costs associated with increasing production by one unit   * if MR>MC, increase the prices   * if MC> MR, don’t increase the prices

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