Monopoly Perfect Competition Monopolistic Competition Oligopol
In long Run, average costs increase due to attraction of supernormal
profits in short run to other firms, supply increases, prices driven down Each firm has 2 market demand curves.
and supernormal profits turn to normal profits due to more spending price demand inelastic: highlights price
advertising, training, expansion, specialising workforce etc which despite changes in demand and supply
Profit Maximising position where MC=MR, supernormal profits increases AC of production. price competition for fear of a price war
(shaded area). MR curve twice as steep as D=AR Curve. Diagram shows Perfect Competition in Long Run. Supernormal Profits oligopolist faces kinked demand curve d
in Short Run, Increase in Supply of Firms in Long Run Leads to Normal Definition: oligopolists in market.
Definition: Profits in Long Run. Price set by firm determined from market forces of Monopolistic competition characterizes an industry in which many
Monopoly: a dominant position of an industry or a sector by one demand and supply from whole market. firms offer products or services that are similar (but not perfect) Definition:
company, to the point of excluding all other viable competitors. It substitutes. Oligopolies possess a state of limited co
usually means the firm has over 50% of the market share. Definition: shared by a small number of producers
Monopoly Power: refers to a firm's ability to charge a price higher than the situation prevailing in a market in which buyers and sellers are so Market characteristics: Many buyers and sellers; Slight differentiated when the top five firms in the market ac
its marginal cost. Monopoly power typically exists where the there is numerous and well informed that all elements of monopoly are absent products; Maximise profits; Low barriers to entry and exit; Potential total market sales.
low elasticity of demand and significant barriers to entry. and the market price of a commodity is beyond the control of supernormal profits in the short term; Normal profits in the long-run;
Dominant Firm: one which accounts for a significant share of a given individual buyers and sellers. Imperfect information; Non-price competition. Market characteristics:
market and has a significantly larger market share than its next largest High Barriers to Entry; Price Makers; Pro
rival. Dominant firms are typically considered to have market shares of Market characteristics: Real world examples (industries & firms): differentiated; Some Price Discriminatio
40 per cent or more. Many Competing Firms, Homogeneous Products Sold, Equal Market Restaurants – restaurants compete on quality of food as much as important; Supernormal Profits in the L
Share, Buyers have Perfect Information, Ease of Entry and Exit. price. Product differentiation is a key element of the business. There Interdependent; Each Firm Has Little M
Market characteristics: are relatively low barriers to entry in setting up a new restaurant.
Monopoly characteristics include profit maximizer, price maker, high Real world examples (industries & firms): Hairdressers. A service which will give firms a reputation for the quality Real world examples (industries & firms
barriers to entry, single seller, and price discrimination. Agriculture: Products are very similar. Carrots, potatoes, and grain are of their hair-cutting. Coffee shop retail – Starbucks, Costa Co
all generic, with many farmers producing them. Easy to buy some land Clothing. Designer label clothes are about the brand and product Newspapers – In the UK market share is
Real world examples (industries & firms): and farm it. Also easy to leave the market too. differentiation Mail, The Sun, The Mirror, The Star, Dai
Google; One can’t even think of the internet layout without Google. Its Foreign Exchange Markets: traders exchange currencies. As there is Supermarkets- leading supermarkets in
competitors are Microsoft and Yahoo but they own a very small share only one US Dollar, one Great British Pound, and one Euro, the What’s good about the Monopolistic Competition theory model?: 'big 4’: Tesco, Sainsbury’s, Asda and Mo
in the market. product is homogenous. Many sellers and buyers in the market. Easy A few barriers to entry; active business environment; customers can
Eurostar; has had a monopoly on operating passenger rail services to buy some currency, and easy to sell it too. obtain a great variety of products and services since they are What’s good about the Oligopoly theory
through the Channel Tunnel for more than a quarter of a century. differentiated; consumers are informed about goods and services Low level of competition; high potentia
What’s good about the Perfect Competition theory model?: available in the market; higher quality of products. The theory of the demand for products and services contr
What’s good about the Monopoly theory model?: Competition results in an efficient allocation of resources because of model can be applied to a wide variety of firms. limited number of companies makes it e
Economies of Scale- lower average costs from increased scale; High the absence of; Externalities & Economies of Scale. Productive compare and choose products; more co
Profit -can be used for research and development: dynamic efficiency; Efficiency is achieved as the firm operates at the bottom of the AC What’s not so good about the Monopolistic Competition theory high quality goods.
Reward of receiving patent -(a monopoly power) can encourage curve. Allocative Efficiency is achieved where P=MC. The price paid by model?:
investment; the consumer represents the true cost of producing the last unit, Short run and long run price greater than Marginal Cost (MC). What’s not so good about the Oligopoly
Firms who become monopolies may just be very efficient, successful ensuring precisely the right amount of the product is produced. Consumers being charged price above cost to produce extra unit of High concentration reduces consumer c
and innovative; Governments can regulate to get best of both worlds, Consumer satisfaction and welfare is maximised. No Information output. Allocative efficiency not being achieved. In ‘long run’, price Cartel-like behaviour reduces competiti
economies of scale and fair prices. Failure. exceeds MC by AB. Productive efficiency not being achieved since in prices and reduced output.
short run and long run firm operating on downward sloping part of AC Given the lack of competition, oligopolis
What’s not so good about the Monopoly theory model?: What’s not so good about the Perfect Competition theory model?: line. Productive efficiency achieved at point C: bottom of AC line the manipulation of consumer decision
Higher prices for consumers; less incentive to cut costs, allocative No chance to achieve maximum profit because of huge number of where AC=MC. Excess capacity inefficiency occurs: firms could expand Unclear is there is asymmetric or perfec
inefficiency (P>MC);productive inefficiency (doesn’t produce at bottom other firms selling the same products. No courage to develop new + reduce AC but higher output means lower prices and losses made. Theory of uncertainty- oligopolies are n
of TC); decline in consumer surplus, potential diseconomies of scale, technology because of the perfect knowledge and ability to share all of This type of inefficiency could be addressed: fewer firms in industry; react - even in the case of collusion. It w
less choice for consumers. the information. firms in a Monopoly or Oligopoly can benefit from Economies of Scale interest to increase their prices as this w
and profitably operate at minimum point of the AC line. revenue, however this is unlikely due to
In long Run, average costs increase due to attraction of supernormal
profits in short run to other firms, supply increases, prices driven down Each firm has 2 market demand curves.
and supernormal profits turn to normal profits due to more spending price demand inelastic: highlights price
advertising, training, expansion, specialising workforce etc which despite changes in demand and supply
Profit Maximising position where MC=MR, supernormal profits increases AC of production. price competition for fear of a price war
(shaded area). MR curve twice as steep as D=AR Curve. Diagram shows Perfect Competition in Long Run. Supernormal Profits oligopolist faces kinked demand curve d
in Short Run, Increase in Supply of Firms in Long Run Leads to Normal Definition: oligopolists in market.
Definition: Profits in Long Run. Price set by firm determined from market forces of Monopolistic competition characterizes an industry in which many
Monopoly: a dominant position of an industry or a sector by one demand and supply from whole market. firms offer products or services that are similar (but not perfect) Definition:
company, to the point of excluding all other viable competitors. It substitutes. Oligopolies possess a state of limited co
usually means the firm has over 50% of the market share. Definition: shared by a small number of producers
Monopoly Power: refers to a firm's ability to charge a price higher than the situation prevailing in a market in which buyers and sellers are so Market characteristics: Many buyers and sellers; Slight differentiated when the top five firms in the market ac
its marginal cost. Monopoly power typically exists where the there is numerous and well informed that all elements of monopoly are absent products; Maximise profits; Low barriers to entry and exit; Potential total market sales.
low elasticity of demand and significant barriers to entry. and the market price of a commodity is beyond the control of supernormal profits in the short term; Normal profits in the long-run;
Dominant Firm: one which accounts for a significant share of a given individual buyers and sellers. Imperfect information; Non-price competition. Market characteristics:
market and has a significantly larger market share than its next largest High Barriers to Entry; Price Makers; Pro
rival. Dominant firms are typically considered to have market shares of Market characteristics: Real world examples (industries & firms): differentiated; Some Price Discriminatio
40 per cent or more. Many Competing Firms, Homogeneous Products Sold, Equal Market Restaurants – restaurants compete on quality of food as much as important; Supernormal Profits in the L
Share, Buyers have Perfect Information, Ease of Entry and Exit. price. Product differentiation is a key element of the business. There Interdependent; Each Firm Has Little M
Market characteristics: are relatively low barriers to entry in setting up a new restaurant.
Monopoly characteristics include profit maximizer, price maker, high Real world examples (industries & firms): Hairdressers. A service which will give firms a reputation for the quality Real world examples (industries & firms
barriers to entry, single seller, and price discrimination. Agriculture: Products are very similar. Carrots, potatoes, and grain are of their hair-cutting. Coffee shop retail – Starbucks, Costa Co
all generic, with many farmers producing them. Easy to buy some land Clothing. Designer label clothes are about the brand and product Newspapers – In the UK market share is
Real world examples (industries & firms): and farm it. Also easy to leave the market too. differentiation Mail, The Sun, The Mirror, The Star, Dai
Google; One can’t even think of the internet layout without Google. Its Foreign Exchange Markets: traders exchange currencies. As there is Supermarkets- leading supermarkets in
competitors are Microsoft and Yahoo but they own a very small share only one US Dollar, one Great British Pound, and one Euro, the What’s good about the Monopolistic Competition theory model?: 'big 4’: Tesco, Sainsbury’s, Asda and Mo
in the market. product is homogenous. Many sellers and buyers in the market. Easy A few barriers to entry; active business environment; customers can
Eurostar; has had a monopoly on operating passenger rail services to buy some currency, and easy to sell it too. obtain a great variety of products and services since they are What’s good about the Oligopoly theory
through the Channel Tunnel for more than a quarter of a century. differentiated; consumers are informed about goods and services Low level of competition; high potentia
What’s good about the Perfect Competition theory model?: available in the market; higher quality of products. The theory of the demand for products and services contr
What’s good about the Monopoly theory model?: Competition results in an efficient allocation of resources because of model can be applied to a wide variety of firms. limited number of companies makes it e
Economies of Scale- lower average costs from increased scale; High the absence of; Externalities & Economies of Scale. Productive compare and choose products; more co
Profit -can be used for research and development: dynamic efficiency; Efficiency is achieved as the firm operates at the bottom of the AC What’s not so good about the Monopolistic Competition theory high quality goods.
Reward of receiving patent -(a monopoly power) can encourage curve. Allocative Efficiency is achieved where P=MC. The price paid by model?:
investment; the consumer represents the true cost of producing the last unit, Short run and long run price greater than Marginal Cost (MC). What’s not so good about the Oligopoly
Firms who become monopolies may just be very efficient, successful ensuring precisely the right amount of the product is produced. Consumers being charged price above cost to produce extra unit of High concentration reduces consumer c
and innovative; Governments can regulate to get best of both worlds, Consumer satisfaction and welfare is maximised. No Information output. Allocative efficiency not being achieved. In ‘long run’, price Cartel-like behaviour reduces competiti
economies of scale and fair prices. Failure. exceeds MC by AB. Productive efficiency not being achieved since in prices and reduced output.
short run and long run firm operating on downward sloping part of AC Given the lack of competition, oligopolis
What’s not so good about the Monopoly theory model?: What’s not so good about the Perfect Competition theory model?: line. Productive efficiency achieved at point C: bottom of AC line the manipulation of consumer decision
Higher prices for consumers; less incentive to cut costs, allocative No chance to achieve maximum profit because of huge number of where AC=MC. Excess capacity inefficiency occurs: firms could expand Unclear is there is asymmetric or perfec
inefficiency (P>MC);productive inefficiency (doesn’t produce at bottom other firms selling the same products. No courage to develop new + reduce AC but higher output means lower prices and losses made. Theory of uncertainty- oligopolies are n
of TC); decline in consumer surplus, potential diseconomies of scale, technology because of the perfect knowledge and ability to share all of This type of inefficiency could be addressed: fewer firms in industry; react - even in the case of collusion. It w
less choice for consumers. the information. firms in a Monopoly or Oligopoly can benefit from Economies of Scale interest to increase their prices as this w
and profitably operate at minimum point of the AC line. revenue, however this is unlikely due to
