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Perfect Competition vs. Monopoly

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. Entry barriers.

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Perfect Competition vs. Monopoly

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  1. PerfectCompetitionvs.Monopoly Microeconomics – Dr. D. Foster

  2. How are they the same? • Profit maximizing. • Same rule for profit maximizing. • Cost structures. • Calculate their economic profit as TR-TC.

  3. How are they different? Monopoly Perfect Competition • Only 1 firm. • Entry barriers. • Mkt D = firm demand • May earn LR econ profits. • Allocatively inefficient • Likely prod. inefficient • Many firms. • No entry barriers. • Mkt D  firm demand • Cannot earn LR econ profits. • Allocatively efficient • LR – prod. efficient

  4. P S S* Pe D Q Qe The Market Perfect Competition $ MC ATC Pe* MR* = d* Pe MR = d q* q q* A Firm The market determines the equilibrium price. Market supply increases and the market price falls. For the firm, price = demand = MR. LR equilibrium – firm earns 0 economic profit; is allocatively and productively efficient. For the firm, find ATC to determine profit. With a positive economic profit, firms enter.

  5. ATC Monopoly Price The firm = the market MC The firm must find MR. P* Find MC to determine Q*. Price off the demand. Find ATC to determine the firm’s economic profit. Demand Without entry, this persists in the long run. Quantity Q* In LR – firm is allocatively and productively inefficient. MR

  6. PerfectCompetitionvs.Monopoly Microeconomics – Dr. D. Foster

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