Monopoly Group:

Single Dominant Seller: Monopoly is characterized by a single seller or producer dominating the entire
market.

Control over Supply and Prices: The monopolist has substantial control over the supply of the good or
service, influencing prices.

Higher Prices: Lack of competition leads to higher prices for consumers, potentially reducing consumer
surplus.

Entry Barriers: Monopolies maintain their position through barriers such as high startup costs or legal
restrictions.

Reduced Incentive for Efficiency: Monopolies may invest heavily in research and development but may
lack the competitive pressure to minimize costs.

Regulatory Intervention: Antitrust regulations are implemented to ensure fair competition and protect
consumers.

Oligopoly Group:

Small Number of Dominant Firms: Oligopoly features a small number of large firms dominating the
market.

Interdependence: Firms' decisions impact rivals, leading to strategic interactions and complex decision-
making.

Product Differentiation: Firms compete through non-price factors like product quality, branding, or
unique features.

Barriers to Entry: Oligopolies have barriers to entry, discouraging new competitors.

Collusion Potential: Collusion may occur, but it is subject to antitrust regulations to prevent reduced
competition.

Price Rigidity: Fear of price wars leads to stable prices within the oligopolistic market.

Government Regulation: Authorities intervene to ensure fair competition and prevent monopolistic or
collusive practices.

Perfect Competition:

Large Number of Buyers and Sellers: Numerous participants, and no single entity influences market
price.

Homogeneous Products: Identical goods or services with perfect substitutability.

Perfect Information: Complete and accurate information for informed decision-making.

Ease of Entry and Exit: Minimal barriers for new firms entering or existing firms exiting.

No Market Power: Firms are price takers with no influence on prices.

Perfect Mobility of Resources: Resources move freely for optimal allocation.

Profit Maximization: Firms aim to maximize profits in both short and long run.

Short-Run and Long-Run Equilibrium: Economic profits compete away in the long run.

Differentiated Competition:

Product Differentiation: Products have unique characteristics leading to brand loyalty.

Many Sellers: Numerous firms producing slightly different products.

Some Control over Price: Firms can influence prices through non-price competition.

Perceived Monopolistic Elements: Firms exhibit monopolistic behavior due to differentiation.

Freedom of Entry and Exit: Barriers are relatively low, allowing entry and exit.

Marketing and Advertising: Heavy investment in marketing to create brand identity.

Consumer Preferences: Consumer perceptions drive purchasing decisions.

Short-Run Profits and Losses: Firms may experience short-run economic profits or losses.

Variety of Products: Differentiated competition leads to a wide variety of products.

In summary, Monopoly and Oligopoly involve dominance by a single or few firms, while Perfect
Competition represents an idealized, highly competitive market. Differentiated Competition combines
elements of monopoly and perfect competition, emphasizing the role of product differentiation,
marketing, and consumer preferences.

Fixed Costs:

Definition: Expenses that remain constant irrespective of the level of production.

Examples: Rent, salaries, equipment leases.

Time Limitation: Fixed costs are time-limited and remain fixed for a specific production period.

Variable Costs:

Definition: Costs that vary with changes in production levels.

Examples: Sales commissions, utility costs, raw materials, direct labor costs.

Dependency on Production Volume: Variable costs increase with higher production and decrease with
lower production.

Total Cost:

Definition: Encompasses both variable and fixed costs, considering all costs incurred in the production
process.

Example Calculation: Total Cost = Variable Cost + Fixed Cost.

Average Cost:

Definition: Total cost divided by the number of units produced.

Calculation: Average Cost per Unit = Total Cost / Number of Units.

Purpose: Used for decision-making regarding pricing to maximize revenue or profit.

Marginal Cost:

Definition: Cost of producing one additional unit of output.

Influencing Factors: Mainly affected by changes in variable costs.

Decision-Making Tool: Management uses marginal cost to allocate resources optimally for profitability.

How to Calculate the Cost:

Identify Fixed Costs: Determine expenses that do not change with production levels.

Determine Variable Costs: Identify costs dependent on production volume.

Calculate Total Cost: Sum of fixed and variable costs.

Average Cost Per Unit Formula: Total Cost / Number of Units.

Profit Consideration: Selling price must exceed the cost per unit to avoid losses.

Summary:

The cost calculation involves determining fixed and variable costs, leading to total cost.

Average cost per unit is crucial for pricing decisions, aiming to maximize profit.
Marginal cost guides resource allocation for optimal profitability.

Accurate cost assessment is vital to ensure that selling prices cover all incurred costs, preventing losses.

Formulas that will be used in understanding the Theory of Production Cost

Total Cost (TC) = Fixed Cost (FC) + Variable Cost (VC)

Marginal Cost = TC2 - TC1 / Q2 - Q1

Ave. Fixed Cost (AFC) = FC ÷ Q

Ave. Variable Cost (AVC) = VC ÷ Q

Ave Cost (AC) = TC ÷ Q

Total Revenue (TR) = Quantity (Q) x Selling Price

Marginal Revenue (MR) = TR2 - TR1 / Q2 - Q1

PROFIT (LOSS) = Total Revenue (TR) - Total Cost (TC)