Market Structures: Perfect Competition & Monopoly
Characteristics of perfect competition, monopoly, monopolistic competition, and oligopoly; price and output determination; profit maximization (MR = MC).
Electricity Company of Ghana (ECG) operates as a natural monopoly in power distribution, whereas Makola market food sellers resemble monopolistic competition.
Key Syllabus Learning Objectives
- 1Compare the core assumptions of perfect competition and monopoly
- 2Demonstrate the profit-maximizing output condition (MR = MC) diagrammatically
- 3Evaluate the social costs and benefits of monopolies with examples
Comprehensive Syllabus Study Notes
- Spectrum of Market Structures:
- Perfect Competition:
- Pure Monopoly:
- Monopolistic Competition: Many sellers, differentiated products (branding, packaging), mild entry barriers.
- Oligopoly: Few dominant large firms; high interdependence (kinked demand curve, price collusion, cartels).
Electricity Company of Ghana (ECG) operates as a natural monopoly in power distribution, whereas Makola market food sellers resemble monopolistic competition.
A competitive firm maximizes profit where MR = MC = P, whereas a monopolist sets output where MR = MC and charges price from the AR curve.
- A competitive firm maximizes profit where MR = MC = P, whereas a monopolist sets output where MR = MC and charges price from the AR curve.
- Giving a perfectly competitive firm the power to set price instead of taking it as given.
- Drawing the firm demand curve upward sloping or drawing it vertical for a monopoly.
- Setting price equal to marginal cost for a monopoly instead of using marginal revenue equals marginal cost.
- Forgetting that marginal revenue falls twice as fast as price on a linear demand curve.
- Claiming that a monopolist always makes supernormal profit without checking average cost.
- Compare the core assumptions of perfect competition and monopoly
- Demonstrate the profit-maximizing output condition (MR = MC) diagrammatically
- Evaluate the social costs and benefits of monopolies with examples
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