Market

Market
commonly thought of as a place where commodities are
and sold and where
1s

buyers and sellers meet. There are markets for bought

commodities. There are foreign things other than
exchange markets, labour markets etc. In fact,
market.In economics to be called as a market, theanything
which has a price has a
idea of
locality or place is not necessary. The traders be
region or a country and yet form may spread over a whole town or
a market, if they are in close communication with
cach other through
telephone, telegram, cable or letter.
According to Benham 'market' means, "any area over which buyers and seller
arein such close touch with one
another, either directly o r through dealers, that the
prices obtainable in one part of the mnarket affect the price paid in other parts"
It is thus clear that market need not be confined to a
the business activities are carried on
locality. In modern times,
through the most sophisticated means of
communications like fax, internet etc.

Macmillan dictionary defines market as follows: "Generally any context in

which sale and purchase of goods and services takes place. There need be no physical
entity corresponding toa market. It may, for example, consist of network of
telecommunications across the world on which, say shares are traded".

Classification of Markets
Markets can be classified on the basis of (1) area covered. (2) time and (3)
degree of competition.

I. According to the area, markets can be of three types. (a) local (b) national
and (c) international.

When demand and supply of a commodity is restricted

to a
A. Local Market :
For example, vegetables, milk,
particular locality, it is called a local market.
and sellers are located
flowers, fish etc. For such perishable goods, buyers
usually available.
only in a particular locality where these goods are
 National Market: When demand and supply of a commodity are spread over
the entire nation, we have a national market. For example, wheat, sugar, medicines
ctc. Goods available in the local markets may also have national market.

International Market: When a commodity enjoys demand and supply from

the entire world, it is said to have International market or world market. Gold.
silver, electronic goods are the examples for goods having international market.
2. On the basis of 'time' markets are classified into three types.

A. Very Short Period It is also called as market period. This is the time period
in which supply remains constant. The
price paid in this time period is called
market price very short
or
period price.
B. Short Period: This is the time
period in which supply can be altered to some
extent by
changing the vari able factors of production.
C.Long Period: This is the time period in which complete adjustment in supply is
possible. Supply of commodity can be increased or decreased according to
the changes in demand. In
long run, all factors become variable. For instance,
if demand for cotton cloth increases in the
long run, the capital equipment can
be altered and the
equilibrium between the demand and supply can be achieved.
3. Based on competition, markets can be classified as
perfect and imperfect markets.
A. Perfect Market : There is
perfect competition amongst the buyers and sellers.
a

Prevalence of the same price for the same commodity at the same time is the
essential feature of this market. Buyers and sellers accept the determined price
in the market.

B. Imperfect Market : In this market, competition is imperfect amongst the buyers

and sellers. Different prices come to prevail for the same
commodity at the
same time. Imperfect market can take several forms.
1. Monopoly
2. Duopoly
3. Oligopoly and

4 Monopolistic Competition
1. Monopoly : It is a market in which a single firm or seller controls the entire
supply of the commodity which has no close substitutes. The price or output
in a monopoly market is not influenced by other goods.

2. Duopoly It is a market where there are only two sellers. A change in the price
:
and output by one seller affects the other. When a duopolist takes a decision,

he takes into account the reaction of his rival.

market dealing in differentiated
3. Oligopoly: There are few sellers in this
firm can influence the price and output
products. As the number is small, each
 decisions of its rival firms. Interdependence is one of the important feature
the market. Companies like Burmahshell, Caltex in our country befor
nationalisation can be taken as exampies of this market. HomO0geneity of god

may or may not exist.

4. Monopolistic Competition: In this market, many firms produce differentiated
killers like Aspirin, Anacin
products. For example, for head ache many pain are close substitute
Saridon are in the market. The commodities produced
available
the goods are produced with
o1 one another. Thus in monopolístic competition
particular brand irrespective
stick on to a
slight differences. Consumers generally
spend to obtain them.
of the price and the time they have
to

Perfect Competition
The following are the features of perfect competition.
large number of buyers and
Existence of
1. Large Number of Buyers and Sellers:
the perfect market. No single buyer or seller
sellers is the important feature of
can influence the price because, each buyers demand is a small portion of the
total demand and each individual seller's output is a small portion of the total

output. So,all firms acceptthe ruling price as given. The firm is thus, a price
taker and quantity adjuster.
2 Homogenous Product: Goods produced by all firms are identical with respect
to shape, size, weight, colour, taste, smell etc. Hence a uniform price prevails
for the product throughout the market.

3. and Firms can freely the

Free Entry Exit :
enter industry and leave the industry
When industry makesSuper normal profits, new firms enter and when it make
losses some of the existung firms leave the industry. Thus, in long run, in a
perfectly competitive industry, there can be only normal profits.
4. Perfect Mobility of Factors of Productions : The factors of
move from one firm to the other. This makes the
production can freely
the market.
prices of factors uniformn in
5. Perfect Knowledge : Another feature of perfect competition is that, the buyers
and sellers are fully aware of the
price pre vailing in the market.
6. No Transport Costs: Because of the absence of
transport costs same price preval
thorughtout the market.
7. No Publicity Cost: As the commodity is homogenous there is no need or
competitive advertisement.
8. Uniform Price : In perfect competition there will be a same price for the same
product throughtout the market.
9. The AR Curve : In perfect competition to
average revenue curve is paralic
the 'X' axis as in the
Fig. 7.1.
 P'rice isgiven by the market
Athe given price, the seller can sell
any quantity ot output. 'The fim need
notdeerease the price in ordor to sel
P more. In the diagram, we can see tha
AR MR
the firmcan sell OM or
OM, quantity
at OP price. ln
perfect competition,
further
M

Quantity Fig.7.1 MR AR
Price Determination
In a
perfectly competitive market, market demand and market supply determine
theequilibrium price. Producersstermine the supply and consumers
demand. The price at which the determine thc
is called the
quantity demanded is cqual to the quantity supplied
equilibrium price
Individual demand is quantity bought by an individual at various
prices at a
particular time. The various quantities of a commodity or service which consumers
would buy in one market in a
given period of time at various prices is the market
demand. A fall in the price leads to an increase in
demand and a rise in price leads
to fall in its demand. The amount of a
commodity that would be offered lor sale at
all possible prices at any one instant of time or
during a period of time is the market
supply. Supply of a
commodity increases with a rise in price and decreases with a
fall in its price.

Price of a
commodity is determined by the demand and
supply. Both the
demand and the supply vary with price. The price al which the
quantity demanded
isequal to the quantity supplied is the cquilibrium price and at this price, exchange
takes place betwecn the buyers and the sellers. The
quantity bought and sold at this
price is the equilibrium output.
The schedule (7.1) shown below indicates how much ofl commodity is demanded
and supplied at different prices.

Table 7.1

Price Market Market

in Rs. Demand Supply
(Kgs.) (Kgs)
5 3500 7500
4 4500 7000
3 6000 6000 Equilibrium
8000 4000
2
11,000 1,000
 The quantity of sugar supplied at Rs. 5 is 7500
Kgs and the demand at that
price is 3500 Kgs. When the price is decreased to Rs. 4, the suppiy is 7000
Kgs.
When price falls to Rs. 1, demand is 11000
Kgs, and the supply is 1000 Kgs. When
the supply is more, price tends to decrease towards the
demand 1S more,
equilibrium price. When the
price tends to increase towards the equilibrium price. When the
price is Rs. 3, demand and supply are equal to 6000 Kgs. So, Rs. 3 is the
equilibrium
price and 6000 Kgs is the equilibrium output.
The same is represented in the 7.2
figure
In the figure 7.2 the
6 quantity demanded and
Excess of supplied are shown on
5 Supply the 'X' axis, price of the
product is shown on 'Y'
axis. Excess of
supply
Equilibrium can be noticed when
price is Rs. 4. Excess of
demand can be noticed,
Excess of -D when the price is Rs. 2.
Demand Supply equals the
X demand at E.
2000 4000 6000 8000 At that
10.000 12,000
Demand and Supply point, the eqilibrium
Figure 7.2 Price Determination Perfect
competetion price is Rs. 3 and the
equilibrium quantity is 6000 Kgs. Any price other than 3 Rs. would lead to disequilibrium
between demand and supply.
Changes in Demand and Supply
A change in the price, changes the supply and demand. A change either in the
Y D
supply or in demand can change the
S price too. The equilibrium price
D changes, when the demand and
supply conditions change.
A change in demand, suppl
P remaining constant
E, In the figure 7.3 the quantity
demanded and supplied is represented
on 'X' axis and
price is represented
on Y axis. DD is the demand curve
S
and SS is the supply curve. Te
D
intersection 'E' of these curves
D, determine the equilibrium price OP
and equilibrium quantity OM.
M, M M,
Demand increases to DD, due to
Quantity changes in the conditions of demand.
Fig. 7.3 Change in Demand
Supply remaining constant, these
 arves intersect at E, and the equilibrium price will be OP, with the equilibrium
l t being OM,. If the demand decreases to DD, supply remaining constant the
outpu

nuilibrium price falls to OP, and the output is OM,.

equ

change in supply, demand remaining constant

In the figure 7.4 the quantity demanded and supplied is taken on the 'X axis
and the price is taken on the 'Y
axis. Sy
DD is the demand curve Y
and SS is the supply curve. They
intersect at E and OP is the
P E
equilibrium price. OM is the
equilibrium output. Due to
change in its conditions supply P,
el
is increased to S S,. Demand
S
remaining constant, the
intersection of demand and
supply curves is at E, and the
s1 D
equilibrium price is at OP, and
the equilibrium output is OM,.
Demand remaining constant an
increase in supply decreases the M M M, X

price. A decrease in the supply Quantity

(SS,) increases the price to OP,. Fig. 7.4 Change in supply

Importance of Time Element in Price Determination

In a perfect market, supply and demand, determine the price. Earlier there
was a controversy amongst the economists as to whether demand is more important
or supply is more important. Marshall resolved this controversy by introducing the
time element. He compared the demand and supply to the blades of a scissors pointing
out that both the forces are required for price determination. In this context, he
divided the market on the basis of time into three categories. (a) Market Period or

Very Short period (b) Short period and (c) Long period.

Marshall's time element depends mainly on two factors

1. The ease with which supply can be changed in relation to change in demand.

2. The impact of change in supply on costs of production.

limited to
a) Market Period: This is the time period in which supply is fixed or is
the existing stock on hand. If there is a sudden increase in demand, there will be
a sharp rise in the market price.
 be increased or decreased, when there is
In the market period, supply cannot
demand becomes more
a rise or fall in the
demand. Thus, in the market period,
raises the price and a fall in demand
decreases the
important. So, a rise in demand additional supply
as there is no
price. Costs of production do not enter the price

the firms output with

can expand their
Short period : This is the time period when
the existing plants by changing the amounts
of variable factors employed. There
equipment. But there
will be fulltime and intense use of fixed factors like capital
is a limit on the firm's productive capacity.
the supply to some but extent
When the demand increases, the firms increase
variable cost may increase while
not to the full extent. In the short run average
decrease. Demand still dominates
in the determination of
average fixed cost may
price of a commodity but not as in the market period.

firms abandon old plants or build new ones in

Long Period : In th long run can
or old ones can
demand. New firms can enter the industry
response to the changes in
leave it. All factors are variable factors
and all costs become variable costs.
of to changes in demand is possible.
supply
Complete adjustment
more important in determining the price.
When all the
becomes
Supply
costs become variable or in other words
when the scale of production is altered to
faces increasing,
change the output according to the change demand,the producer
in
more than, less than or equal
decreasing or constant costs. Price may be respectively
cost of production or supply plays an
to the original price. Thus in the long run
role in determination.
important price
The long run price is also called as natural price.

Equilibrium of the firm in the short run

A firm is said.to be in equilibrium when it has no incentive either to expand

or to contract its output. So, a firm is at equilibrium when it is earning maximum
profits.
In a perfect market, the total supply and the total demand determine the
equilibrium price. The price determined in the industry is accepted by the individual
firm. The individual firm is thus a price taker. Given the price, the firm adjusts it
output to get maximum profits or minimum losses.

Two conditions are to be satisfied if the firm is to be at equilibrium.

1. Marginal cost (MC) must be equal to Marginal Revenue (MR). i.e. MC = MR

2. Marginal cost curve must cut the marg1nal revenue curve from below.

In a perfect market, price=AR=MR. In the fig 7.5 AR and MR respec

revenues. Marginal cost curve MC intersects
tively indicate average and marginal
 P m c e

MR at R and Q. But R is not the point of equilibrium and

inal revenue curve
marginal

Because when output is increased beyond ON, the

not the equilibrium output.
si s not
ON

inal
m a r g n
cost is decre asing. So production continues.

point Q, not only MC=MR, but also MC curve cuts MR curve from below.
At
and
eQuilibrium is determined at the point Q. Then OP is the equilibrium price
i s the equilibrium output. If the output is increased beyond OM the marginal
revenue. So the firm will be in
is increasing and it will be more than marginal
ost
c O s t

where the twin conditions of equilibrium are satisfied.

Quilibrium at Q

MC

P
AR =MR

N M X
Output
Figure 7.5 -
Perfect competition Equilibrium of the firm
normal profits. AC and MC
Fig 7.6 shows the equilibrium of the firm with
cost curves.
are the average cost and marginal

MC
AC

AR=MR

M X
Output
Figure 7.6-Normal Profits

of the firm is at 'Q' where both the

If the price given is OP the equilibrium
satisfied. The equilibrium output is OM. Average
Conditions of equilibrium are
are normal
revenue AR which implies that there
COst curve AC is tangent to average
profits.
 In short run, if there is a change in the conditions of demand, demand increae.
or decreases. 1f
es
demand increases
So price increases to OP,.
the supply cannot be increased to the same
exten
ent.

MC

AC

--P =AR, =MR

P AR = MR
P -P, AR, MR,= =

O
M
X
M
Output
Fig. 7.7 Abnormal Profits

Then price line P, =

AR, MR,. In short run as the marginal costs remain
=

constant, it intersects MR, at Q, and the

equilibrium will be at Q,. So, equilibrium
output increased from OM to OM,. To know the total
must know the total revenue and the total
profit or loss of the firm, we
cost. If OM,
the total revenue will be output is sold at OP, price,
OM, OP, =9OM, Q,, P. The total output OM,
x

multiplied with the average cost is the total cost (OM, x M,R
total costs are deducted from the total OM,RT). When the
=

revenue, we get the profit.

OM,Q,P,- OM, RT =OP,Q, RT
The area of the rectangle
P, Q, RT (shaded portion), thus
indicates the profits.
In short run if the average revenue is more than
average cost the firm makes abnormal
profits. New firms are attracted into the industry. If the average revenue is less than
the average cost, the firm makes losses. The firm will be
in equilibrium at OP, price
with the losses.

Equilibrium of Industry
An industry is the combination of firms producing the same commodity. Au
industry is said to be in equilibrium when there is no tendency either for the existing
firms to leave the industry or for the new firms to enter the
industry. An industry
will be in equilibrium when all the firms in the industry earn normal profits. Tna"
neans
when
when the profit is sufficient, no firm leaves the industry. At the same time,
rofit should not be so high to attract the new firms.
this
pro

(a) Equilibrium of the Firm (b) Equilibrium of the Industry

D
AR,5 MR, = P, S
P
AR = MR =P

ARMR
S D

M, M M, X O M X
Output Output
Fig. 7.8 Perfect Competition Equilibrium of the industry
Figure 7.8 (a & b) illustrates equilibrium of the firm and industry. Equilibrium
price OP isdetermined by the interaction of market demand and market
curves. OM is the out put. The firm under supply
perfect competition accepts this OP price.
In fig 7.8 (a)
AR is the average revenue curve and it is also the
marginal revenue
curve MR. MC is the
marginal cost curve. It intersects MR curve at E. The firm is
therefore in equilibrium at E and produces OM
output. At the output OM average
revenue (AR) of the firm is
equal to average cost (AC) of the firm. Hence the firm
earns normal
profits. If for one or other reason
price rises to OP,, there by earns
abnormal profits, new firms enter the industry. So the
the industry increases. When the
supply of the commodity in
supply is more than the demand, price falls and
once again comes to OP. That means firms earn
normal profits. If the price falls to
OP, firms incur losses ( AR < AC). So some firms leave the
commodity in the industry decreases. When the supply industry
and the
supply of
is less than the
demand, price rises and once again it will be OP. Thus the
at OP price with OM
industry is in equilibrium
output. Hence the firms earn normal
do not enter or existing firms do not leave the profits. Then new firms
industry.
Imperfect Market - Features
An
imperfect market can take several forms Monopoly, Monopolistic
Competition, Duopoly, Oligopoly. The general features of
as follows: an
imperfect market are
1. Sellers: In a
perfect market there are
many sellers and buyers. In an
market, if it is
monopoly, there is a
single seller. If it is
imperfect
if it is
oligopoly, there are few and if it is monopolistic duopoly, there are two,

many. Buyers are many in all situations. competition, there are

 market, commodity is hom.
2. Nature of the Commodity In a perfect
differentiated with different labels no
monopolistic market product is and brand
In mononan
names. In duopoly and oligopoly goods can be homogenous. poly
has close substitute. the
product no

3. Price: Price is uniform in a perfect market. Price 1s different in an

an imn
imperfect
market.
4. Entry of Firms There is free entry and exit of firms in a pertect market
an imperfect market particularly in monopoly, entry 1S strictly restricted In

5. Factor Mobility: Free mobility of factors of production is the feature of Derf.

competition. Factor immobility is the feature of imperfect market. They
re
not freely mobile.

6. Knowledge about Market : Consumers are not fully aware of market condition.
s
in an imperfect market.

7. Transport and Selling (Publicity) Costs: In a perfect market, there are no transport
and selling costs. But in an imperfect market, sellers advertise
through Television
Radio etc. Thus, there are both selling and
transport costs in an
imperfect market
8. Average Revenue : In a perfect market, AR=MR and it is parallel to the X' axis
indicating that the seller can sell as much as he wants at the given price. In an
imperfect market. AR is a downward sloping curve indicating that more can be
sold only by decreasing the price, MR will be below the
AR.

Monopoly
Monopoly is form of
imperfect market structure. The literal meaningof
a

monopolist is 'a sole

seller and the dictionary meaning is 'exclusive control.
(Mono single, Poly seller). It is a market form in which a
= =

the whole supply of the single producer controls

commodity which has no close substitutes.

Features of Monopoly
1. There is a single seller who controls the whole
supply of the commodity
2. The product of the
monopolist has no close substitutes.
3. Consumers are
many and they compete with one another.
4. Power to influence price is the ed
essence of monopoly.
that the monopolist can either But, it is to be noboth
determine the price or the output but
at the same time. When he
fixes the price, the nohe the

consumers. When he fixes the output to be output to be sold is

leted
sold,
n i n e d

the price is to be deter

by the demand of consumers.
 average revenue curve (demand curve) slopes downwards to the right in
The av
onopoly. indicatin
monop indicating that the monopolist is required to reduce the price in

order to sell more.

There is only one firm under monopoly. That single firm constitutes the whole
.
industry. Thus, there is no distinction between the firm and industry in monopoly.

There is price discrimination in monopoly. Same commodity can be sold at

different prices to different consumers. In different markets., the price is different
depending on the demand elasticity of the product.

There are strong barriers for entry into the industry.

Kinds of Monopoly

1. Private and Public Monopolies: Ifthe right to produce a particular commodity

is legally vested in the hands of private individuals, it is known as private

monopoly. If it is vested exclusively in the hands of Government, it is known

as public monopoly. Generally all public utilities are treated as public monopolies.

water supply
Railways, Post-offices, telephones, telegraph, electricity,
These are also
maintained by the state are considered as public monopolies.
called as state monopolies or social monopolies.

Monopolies In a simple or normal monopoly, the

II. Simple Discriminating
and
to all the consumers. In a discriminating monopoly,
product is sold at the same price different prices. Profits are
be sold to different c o n s u m e r s at
a product can
the c o n s u m e r s .
maximised by discriminating amongst

exclusive ownership or control over

raw-

III. Natural and Artificial Monopoly By

:
into existence.
the natural monopolies come
material or natural resources,
of natural
Petrol in Gulf Countries are the examples
Diamonds in South Africa,
function as
Some competing firms can come to an agreement to
monopolies.
maximised when they combine.
unit if they realise that profits can be
a single artificial monopoly.
The combination gives them the monopoly power. It is an

: These can be the result of exclusive knowledge

IV. Technological Monopolies
monopoly power by using a superior
of technology by the firm. A firm assumes

technology exclusively.
of currency notes, post offices are the
V. Fiscal & Legal Monopolies : Printing
Patent rights for the products or production
examples of fiscal monopolies.
to firms. e.g., copy right.
process give legal monopoly rights
Price Determination in Monopoly
In a monopoly there is a single producer. He can control either the .
or the price. But he cannot control both at the same time. He can increase thPPl
by decreasing the output. Or he can sell more output by decreasing the e
Maximisation of profits is the sole objective of the monopolist. Further under mone
firm and industry are same. As in perfect competition monopoly equilihriy
determined at the point where marginal cost is equal to marginal revenue. So margin. ium
revenue and marginal cost curves are necessary to determine equilibrium. In additi
average cost and average re venue curves are necessary to know the profit or
position of the firm.

Revenue curves under monopoly

Before we study the equilbrium of monopoly firm we must know the nati
of marginal cost (MC) and marginal Revenue (MR) curves as well as average revene
ature
(AR) and average cost (AC) curves under monopoly. Following table (7.2) and fio
(7.9) illustrate marginal and average revenues.

Table 7.2

Quantity Price Total Average Marginal

of good P Revenue Revenue Revenue
Q TR AR MR

0 0 0 0
10 10 10 10
2 9 18 9
3 24 6
4 28 4
5 6 30

Explanation Figure 7.9 illustrates that average revenue and marginal revenue
curves are different from each
other. Both the curves slope
downwards from left to right,
more output can be sold by
decreasing price. Further average
revenue curve lies above the

marginal revenue curve.

AR
MR The rate at which

marginal revenue falls is double

Output that of average revenue.
Fig. 7.9
 Drice determination under
monopoly requires average cost & marginal cost
as in the perfect competition. The
curves a s
shape of average cost & marginal cost
os in monopoly is similar to average & marginal cost curves under
curve.

perfect
mpo
netition. These two curves are in 'U'shape. Average cost comprises of
average
ed cost and average variable cost. ig. 7.10 shows prce determination under
Monopoly.

MC

AC

AR

MR

Q X
Output
7.10 Price determination
Fig. under Monopoly
In the 7.10 figure, X' axis represents the output and'Y' axis represents price/
revenue/cost. AR and MR are the average and marginal revenue curves. AC and
MC are the average and marginal cost curves. At point 'A' MC cuts MR. This is
the equilbrium point of monopoly. The output at that level is 0Q and price is OOP
At 0Q output the difference between average revenue and average cost indicates

the profits of the firm. In the figure (7.10) "BC' indicates the profit per unit of
output. To know the total profits of the firm total cost has to be deducted from total
revenue.

Total Revenue = Unit Price x Quantity of output sold

= OP x OQ =
OPOQC
Total Cost = Unit Cost x Quantity of output sold

= OR x OQ =
OROQQB
Total Profits Total Revenue -Total Cost

POQC OROQB =PRBC

The area of the rectangle PRBC indicates the total profits of the monopoly
firm.
Losses in Monopoly: Monopoly firm always may not get abnormal prof
demand and cost conditions are not favourable, the monopOlISt may also inc.}
ofits. If the,
This is shown in figure 7.11
incur losses.

MC,
AC
AR =
Average Revenue
rve
MR Marginal Revenue Curve
AVC AC Average Cost
=
Curve
AVC Average Variable Cost
Curve
MC =
Marginal Cost Curve
\MR AR

Output Q X
Fig. 7.11 Losses in Monopoly
In the figure
7.11 'X' axis represents the
output and Y axis the
cost. Equilibrium is at the OQ output. The average revenue is RQ andprice/revi
cost is R,Q. Costs are averape
higher than revenue. Loss on each unit is
RR,. Total los
is equal to PP, R,R. As the
so the
price (AR) is greater than average variable cost (AVC)
monopolist continues production in short run. E is the point of
of monopoly firm with losses. equilibrium
Regulation of Monopoly
There is a general impression that
the interest of consumer and
monopolist exploits the customers. In
the monopoly. The two methods
community large, the governments may regulate
at
commonly used are 1. Price regulation and 2.
Taxation. By regulating the prices of commodities and
commodities produced by monopolist, by imposing taxes on the
government can control the monopoly power.
Comparison of Perfect Competition and Monopoly
In perfect competition, there are many sellers but in
one seller. Under perfect competition the monopoly there is only
is accepted by every firm. So a firm price is determined
by the industry which
is a price taker and a
influence the price under perfect single firm can not
competition. In monopoly as there is only one firm,
single firm constitutes the whole industry. So monopoly firm has power in the price
determination. In perfect competition and in
maximise the profit. If at all there are losses its monopoly the aim of the firm is to
aim is to minimise the losses.
achieve this the firm under
competition and under monopoly produce that
10
where the marginal cost is equal to outpu
marginal revenue and be in equilibrium. Thougu
there some similarities there are difference too. The
in brief.
following are some of the differenc
 nerfect competition, firms average revenue curve is parallel to X axis, MR
eConcides
rve concides with it. Therefore the average revenue and
marginal revenue
curve are one and same. Under monopoly, AR & MR curves fall downwards
irom left to right. MR curve always lies below AR curve.
from

AR = MR = Price

MR AR

X
X Output
Output Fig 7.13
Fig 7.12

MR = MC =

in equilibrium, AR
=

2. In perfect competition when the firm is MR.

when the firm is in equilibrium
AR P =
>MC =

P. But in monopoly where as price will be

Price is equal to marginal
cost in perfect competition
cost in monopoly.
greater than marginal
achieved when
equilibrium is
under perfect competition
long firm will be in equilibrium
run
3. In the
minimum. Under monopoly the
average cost
is at its decreasing.
constant or
cost is increasing,
when average
1. MC MR and =

competition equilibrium are

conditions of perfect equilibriumn
4. The two
curve from
below. But in monopoly,
cuts the MR MR c u r v e from
2. MC c u r v e MC c u r v e cuts the
MR and when the
MC =

is attained when
above too.
below or from
in the longrun, where
as
firm gets only normal profit
5. In perfect competition, also in the longrun.
in monopoly a firm can get Super normal profits
than under monopoly.
is more ànd price is less
6. In perfect competition output
In
discrimination under perfect competation.
7. There is no possibility of price
discrimination is usual phenomenon.
monopoly price