Perfect Competition vs. Monopoly by DWt7kRZs

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									  Perfect
Competition
    vs.
 Monopoly




      Microeconomics – Dr. D. Foster
   How are they the same?
• Profit maximizing.
• Same rule for profit
   maximizing.

• Cost structures.

• Calculate their economic profit as
  TR-TC.
         How are they different?
    Monopoly                 Perfect Competition

• Only 1 firm.               • Many firms.
• Entry barriers.            • No entry barriers.
• Mkt D = firm demand        • Mkt D  firm demand
• May earn LR econ           • Cannot earn LR econ
  profits.                     profits.
• Allocatively inefficient   • Allocatively efficient
• Likely prod. inefficient   • LR – prod. efficient
                      Perfect Competition
 P                                      $
                            S                                    MC
                           S*                                            ATC


Pe                                     Pe                             MR = d
                                       Pe*                            MR* = d*
                            D

                                Q                                       q
                 Qe                                 q* q*

          The Market                             A Firm

The market determines the equilibrium price.    Market supply increases and the
                                                market price falls.
For the firm, price = demand = MR.
For the firm, find ATC to determine profit.     LR equilibrium – firm earns 0
                                                economic profit; is allocatively and
With a positive economic profit, firms enter.   productively efficient.
                                     Monopoly
                                Price
The firm = the market                           MC
The firm must find MR.                           ATC
Find MC to determine Q*.
                                P*
Price off the demand.

Find ATC to determine the
firm’s economic profit.                                   Demand
Without entry, this
persists in the long run.                                    Quantity
In LR – firm is allocatively            Q*           MR
and productively inefficient.
  Perfect
Competition
    vs.
 Monopoly




      Microeconomics – Dr. D. Foster

								
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