Monopoly and Imperfect

Competition
Industry- a group of firms selling the
same commodity or service.
Market structure- describes the presence
or absence of competition in a given
market.

Perfect competition
Differentiated or monopolistic competition
Oligopoly
Monopoly
The behavior of the average cost of the firm is the
critical factor that helps to determine whether an
industry has numerous sellers in competition or fewer
ones.
The average cost of production determines whether a
firm is capable of supplying only a small portion of
market demand or the whole of it.
* The key explanation to the formation of these market
structures is the relationship of the average cost of
production to the size of the market demand being
served.
It refers to a situation in which the buyers
and sellers are very small participants in
the market. It is in the sense that,
sometimes, this type of market is also
called atomistic competition.
In perfect competition, the seller is so
small in relation to the whole size of the
market.
In this market, there are many sellers that
serve the same market. The size of the
firm can be relatively significant to total
market size.
Entry of competition in monopolistic
competition is relatively easy. Because of
this, firms in monopolistic competition
make great efforts to differentiate their
product from other competitors.
When the average cost curve displays
large economies of scale and several
firms can account for the total market
demand, an oligopoly market is very
likely.
In oligopoly, the firms that are already in
the market have an edge over the
potential competitors.
The average cost curve of the monopolist
keeps on falling until competitors find it
difficult to compete. The monopoly is
characterized by a declining average cost
of production. This is because, as more
output is produced, the marginal cost
keeps falling.
Why market imperfections
are common in developing
countries
The relative smallness of market demand can
create a market monopoly. Market
opportunities are therefore also very limited.
Social customs and other kinds of non-
economic factors might cause markets to be
fragmented.
The organized market for goods is also limited
because of the inadequacy of market demand.
Market information can also be very limited and
at times inaccurate, the poorer the economy is.
Price- output determination
in a monopoly
The decision problem of a monopoly is
how to maximize profits like any firm in
any market. The results of price-output
determination are different from
competition because of the peculiar
conditions confronting a monopoly.
The monopolist has market power. He is
able to adjust his output level to the
MR=MC equality. At that point, the profit
level of the firm is maximized. The price
per unit is the average revenue. Or
P=AR.
The monopolist maximizes profit at
MR=MC. This leads to a price, that is far
higher than the industry solution under
pure competition.
Under monopoly equilibrium, consumer
welfare is reduced.
It involves charging different prices for
the same product. It means that, along
the demand schedule, the monopolist
charges a high price for consumers who
have a willingness to pay for the product
at a high price and a low price for those
willing to pay only at a lower price.
the income or the profit of the monopolist
results from taking away all costs from
the sales revenue. Since profits or
income is a residual of this calculation, all
costs and all revenues are already taken
into account. In short, the tax on income
does not affect revenue or costs.

The effect of tax per unit or ad valorem
tax is to alter cost curves. Suppose the
product of the monopolist is electric
power and there is a tax on per kilowatt-
hour of electricity.
The tax is a three-level progressive tax,
meaning, the tax rate increases at a
progressively rising level as the
consumption of electricity rises.
Arises when some sellers acquire a
degree of control over the outcome of
price and quantity equilibrium in the
market. This often results from having
some significance in size relative to the
market.
It is characterized by the presence of
many sellers.
Sellers try to have a degree of control
over the product through various means,
such as by differentiating the product
from that of the competition.
At first the firm's short run demand
schedule makes it possible to earn profits
when it sets output and price where
MR=MC. The firm earns monopoly
profits, because the price charged is
above the cost per unit.
Competition rules depend on what the
market leaders do.
A price war could lead to gains in market
share by some competitors and the loss
of some by others. Sometimes, it even
happens that the highest cost seller is
wiped out in the market.
The kinked demand curve theory is an economic
theory regarding oligopoly and monopolistic competition.
When it was created, the idea fundamentally challenged
classical economic tenets such as efficient markets and
rapidly-changing prices, ideas that underlie basic supply
and demand models. Kinked demand was an initial
attempt to explain sticky prices.
"Kinky" demand curves and traditional demand curves
are similar in that they are both downward-sloping. They
are distinguished by a hypothesized convex bend with a
discontinuity at the bend - the "kink." Therefore, the first
derivative at that point is undefined and leads to a jump
discontinuity in the marginal revenue curve.
A branch of economics that assumes that
economic outcomes are conditioned by
uncertainty and risk. In this world,
interactions of economic players can be
analyzed in a way that certain profits or
losses are earned through the moves
that participants make in a game of
interaction.
One type of competition is through price-
cutting. The issue is what competitors
would do in the face of the possibility of
their main competitor either maintaining
current prices or reducing them.