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Economy

e
r
fect

Competition
What Is Perfect Competition?
Pure or perfect competition is a oretical market structure in which the
following criteria are met:

 All firms sell an identical product (the product is a "commodity" or

"homogeneous").
  All firms are price takers (they cannot influence the market price of
their product).
 Market share has no influence on prices.
 Buyers have complete or "perfect" information—in the past, present
and future—about the product being sold and the prices charged by
each firm.
 Resources for such a labor are perfectly mobile.
 Firms can enter or exit the market without cost.

Examples of Perfect Competition 

As mentioned earlier, perfect competition is a theoretical construct and
does not exist in reality. As such, it is difficult to find real-life examples of
perfect competition but there are variants present in everyday society.

Consider the situation at a farmer’s market, a place characterized by a

large number of small sellers and buyers. Typically, there is
little differentiation between products and their prices from one farmer’s
market to another. The provenance of the produce does not matter (unless
they are classified as organic) in such cases and there is very little
difference in the packaging or branding of products. Thus, even if one of
the farms producing goods for the market goes out of business, it will not
make a difference to average prices.

The situation may also be relatively similar in the case of two competing
supermarkets, which stock their aisles from the same set of companies.
Again, there is little to distinguish products from one another between both
supermarkets and their pricing remains almost the same. Another example
of perfect competition is the market for unbranded products, which features
cheaper versions of well-known products.

Market demand rises from D1 to D2 causing the price to rise from P1 to P2.
This causes supernormal profit.
Monopoly
What Is a Monopoly?
A monopoly refers to when a company and its product offerings dominate
one sector or industry. Monopolies can be considered an extreme result
of free-market capitalism in that absent any restriction or restraints, a single
company or group becomes large enough to own all or nearly all of the
market (goods, supplies, commodities, infrastructure, and assets) for a
particular type of product or service. The term monopoly is often used to
describe an entity that has total or near-total control of a market
Monopoly Graph

Consider the following hypothetical example.

OUTPUT P TFC  TVC TC AC MC

0 100     100    
1 90     130    
2 80     158    
3 70     183    
4 60     208    
5 50     253    
6 40     308    
7 30     368    
8 20     468    

1. Complete missing figures.

2. Plot ATC and AVC.
3. Plot MC.
Answer.
PRICE FIXED  VARIABLE TOTAL AVERAGE MARGINAL
OUTPUT
(£000) COST COST COST COST COST

0 100 100 0 100    

1 90 100 30 130 130 30

2 80 100 58 158 79 28

3 70 100 83 183 61 25

4 60 100 108 208 52 25

5 50 100 153 253 50.6 45

6 40 100 208 308 51.3 55

7 30 100 268 368 52.6 60

8 20 100 368 468 58.5 100

TC=TFC+TVC

AC=TC/Q

MC=dC/dQ