The Various Shades Of Monopolies And Perfect Competition

For my research paper I decided to write about monopolies. I chose to write about monopolies because I wanted to learn more about them. No this type of monopoly is not a board game in which consumers engage in buying houses or property with fake money. Instead this type of monopoly is a firm that is the only seller of a good or service that does not have a close substitute. An example of a monopoly is natural gas company or Time Warner Cable or Microsoft and its Windows operating system. Although few people like monopolies and even though few companies are monopolies, the model of a monopoly can be useful. You see a monopoly is useful in analyzing situations in which firms agree to act together as if they were a monopoly. Monopolies are not illegal in the United States. What is illegal is actions taken by monopolies to limit competition. But there are times when one supplier in a market is better than a competitive market? Should the government work to protect that one supplier in a market?

Economic analysis of a monopolistically competitive industry is more complicated than that of pure competition because:

This essay will look at efficiency between both a monopoly and a perfect competition, and whether a monopoly is necessarily less efficient than perfect competition. Using diagrams and equations reflecting the optimal choice of output, marginal revenue and marginal cost for monopolies, I will explain how efficiency is affected by low levels of production. At the same time monopolies can increase efficiency due to their ability in price discrimination, they price people differently and therefore people pay what they truly believe the good is worth. There needs to be a clear description of the differences between monopoly and perfect competition as well as efficiency; an analysis of deadweight loss and natural monopoly is also important

In practice, pure monopolies are very rare. For instance, a supermarket may be the only food supplier in a particular town, but if it raises its prices and retains too much of a profit, a competitor may enter the space. Even the threat of serious competition entering the market forces the existing firm to act conscionably and differently from how it would act otherwise. (Monopolies & Oligopolies) For example Wal-Mart is not only a clothing store but it also a grocery store. Another place that is similar to Wal-Mart is Meijer and Wal-Mart is significantly cheaper than Meijer this is why many people such as myself shop at Wal-Mart versus Meijer.

In this paper, section 1 will focus on the theory and economics of a monopoly. Section 2 will discuss with a recent case of monopoly, as in the web search engine company- Google, whose real repercussion is still not clear to most consumers. Finally this essay will conclude with the outlook on how world markets are opening up to each

“Perfect competition is the market structure in which there are many sellers and buyers, firms produce a homogeneous product, and there is free entry into and exit out of the industry”(Amacher & Pate, 2013)

In short run , a firm in monopolistically competitive market can behave like monopolies including by using market power to generate profit. In the long run, however, other firms enter the market and the benefits of differentiation decrease with competition; the market becomes more like a perfectly competitive one where firms cannot gain economic profit. In practice, however, if

More specifically, a Monopoly market structure is one where a single firm is the seller of a product in a market which therefore meaning it has the full market shares in a particular market. Monopolies are also characterised by a lack of competitors in a market, or viable substitutes to a good or service. Therefore, a firm in a monopoly enjoys the power of being a price maker in a market as it has no close competitors to influence price.

Answer: Typically, the approach to study and discuss monopoly bases on the firms’ behaviors in pursuit of maximizing monopolistic profit. In particular, the monopolist’s profit maximization is derived and interpreted through the first-order condition, which is the quantity of output that marginal revenue equals to marginal costs (Mankiw, 2012: 283). Following the above logic above, the discussion of maximization of monopoly profit is usually conducted by the mathematical equation and figure, which contains curves of demand, average cost, marginal cost, and marginal revenue. Different from the standard approach, the module of “Theoretical Foundation of Economic Policy” chose a different way to discuss monopoly. This module’s discussion on monopoly relied on case analysis.

Monopolistic competition firms might maximize profit or minimize loss in the short run. The firms that under monopolistic competition used this strategy as the production of output where the marginal revenue is equal to the marginal cost (MR = MC).

Perfect competition is a type of market structre where there is highest level of competition. In perfect competition the firms are offering homogeneous product. Every firm believe that it can sell any amount of output it wishes at the prevailing market price. Because of homogenous product and large number of firms, no individual firm is in a position to effect the price of the product and therefore the demand curve for the firm under perfect competition is a horizontal straight line.

The theory of pure competition is a theory that is built on four assumptions: (1.)There are many sellers and many buyers, none of which is large in relation to total sales or purchases. (2.) Each firm produces and sells a homogeneous product. (3.) Buyers and sellers have all relevant information about prices, product quality, sources of supply, and so forth. (4.) Firms have easy entry and exit.

There are several characteristics of a monopoly. Firstly, extreme economies of scale are available to monopolist firms, giving them a huge advantage over any other company. Because of this and relatively low costs despite large product ranges, supernormal profits are achieved. Another characteristic is the inelastic demand for these firm’s products.

Unlike the theoretical perfect competition market, Oligopolies exist in real life. A market structure that is dominated by two companies is known as a duopoly. An example of an oligopoly is the soft drinks market that is dominated by Coca-Cola and Pepsi (Zheng, 2013). Oligopolies can be categorized according to the type of product they produce. The products may be either homogeneous or differentiated. On the one hand, Homogeneous products are produced by a standardized or a pure oligopoly. On the other hand, a differentiated oligopoly produces different products (William & Allan, 2011).

Within monopolistic firms there are a large number of organizations that operate within the industry which are independent from each other. The decision of one firm in the market has no significant effect on the demand curves of its rivals. There is also freedom of entry into the industry. The firms within an industry offer product differentiation, where one firm’s product is amply diverse from its competitor 's products, in order to allow raises in price without customers converting to alternate products.