MARKET STRUCTURE

Criteria Monopoly Oligopoly Monopolistic Perfect

competition competition
Examples Tap water Cars Movies Wheat
Cable TV Steel Restaurants Milk
Number of One Few Many Numerous small
sellers firms
Products firm No close similar or firms sell similar Identical
sells substitute identical but not identical
products
Differentiated

Free entry/exit No Difficult Easy Freely

Competition No High Extremely high
P, MR, AR P > MR P > MR P > MR P = MR = AR

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MARKET STRUCTURE
Criteria Monopoly Oligopoly Monopolistic Perfect
competition competition
D curve facing Downward- Downward- Horizontal
firm sloping sloping
(market D)
Profit P > MR = MR = MC MR = MC MR = MC
maximization MC Produce Q, (or P = MC)
rule greater than
monopoly Q,
less than
competitive Q
Price P > MC P > MC P > MC P = MC
(Markup The price: is
over less than the
marginal monopoly P,
cost) greater than
the competitive
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P = MC
MARKET STRUCTURE
Criteria Monopoly Oligopoly Monopolistic Perfect
competition competition
Can earn Yes Yes Yes Yes
economic
profits in
short run?
Long rung Positive Positive Zero Zero
economic
profit
Market Yes Yes Yes No
power? Price maker Not price taker Price taker
Firm’s No supply The portion of
supply curve firm’s MC curve
curve above AVC.
Welfare Market is not Market is not Market is not Market is efficient
(total efficient efficient efficient Maximum
surplus) Deadweight 140
loss
MARKET STRUCTURE
Criteria Monopoly Oligopoly Monopolistic Perfect
competition competition
Special Three Interdependence Differential - Shut down
characteristi Barriers to among firms: A products (Produce Q = 0
cs Entry: firm’s decisions in the short run)
1. Monopoly about P or Q can if TR < VC, or P
resources affect other firms < AVC
2.Governme and cause them to - Exit the
nt regulation react. The firm will
market if: TR <
consider these
(Patent and TC (same as: P
reactions when
copyright < ATC)
making decisions.
laws) Each firm has an - Efficient
3. The incentive to scale: Quantity
production compete with each at minimum
process: other. When the ATC
natural game is repeated
monopoly many times,
cooperation may
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be possible.