Perfect Competition Market Structure

     In perfect competition there are many buyers and many sellers at the same time. This market structure is also known as price taker because the price of the goods and services itself cannot be influenced by a perfect competition firm. Not only that but this market structure only sells homogenous goods.

        In the diagram above, the firm in the perfect competition is going through an economic lost due to the total revenue is less than the total cost. This will affect the average revenue less than the average cost. Thus, the price is less than the average cost. 

 

   In the diagram above, firm is going thru a normal profit. Total revenue is equals to total cost which will also make the average revenue equals to average cost. Therefore, price is equals to average cost.

 

     In the diagram above, firm is going thru an economic profit. Total revenue is more than total cost which will also make the average revenue more than average cost. Therefore, price is more than average cost.

Monopolistic Competiton

Monopolistic Competition is one of three market structures in the Economy. The other two that is Perfect Competition and Monopoly has a few similarities with Monopolistic Competition.

There are a few features of monopolistic competition. Firstly, it has many sellers in the industry  which is why they produce few market supplies which means that sellers couldn’t control the price.

Secondly, firm produces differentiated products to keep it distinct. This causes an increase in competition, hence influencing over pricing.

Thirdly, firm is free to enter and exit the industry. This leads to inhabit competition and maintain normal profits in the long run.

Fourthly, the firm is independent, due to many differentiated firms. which avoids firms from being influenced by one another.

Lastly, in the Monopolistic market structure the firm is facing a downward sloping demand curve, which means nobody could sell lower than the market price.

As figure above has shown the monopolistic competition facing downward sloping demand curve. In the market, many sellers are selling close substitutes products. Therefore, the demand curve in monopolistic competition is fairly elastic.

For more information on Monopolistic Competition, 

This video may be of help

Click Here to watch a short video on Monopolistic Competition

In this market structure firm earns 3 types of profit in short run:

1.     Normal profit happens when total revenue (TR) = total cost (TC) and average revenue (AR) = average cost (AC).

Figure 1.1

Figure 1.1 shows normal profit graph.

2.     Supernormal profit happens when TR > TC and AR >AC.

 

Figure 1.2

Figure 1.2 shows supernormal profit graph.

 

 

3.     Sub-normal profit happens when TR < TC and AR < AC.

Figure 1.3

Figure 1.3 has shown subnormal profit graph.

As figure above has shown the monopolistic competition facing downward sloping demand curve. In the market, many sellers are selling close substitutes products. Therefore, the demand curve in monopolistic competition is fairly elastic.

For more information on Monopolistic Competition, 

This video may be of help

Click Here to watch a short video on Monopolistic Competition

In this market structure firm earns 3 types of profit in short run:

1.     Normal profit happens when total revenue (TR) = total cost (TC) and average revenue (AR) = average cost (AC).

Figure 1.1

Figure 1.1 shows normal profit graph.

2.     Supernormal profit happens when TR > TC and AR >AC.

 

Figure 1.2

Figure 1.2 shows supernormal profit graph.

 

 

3.     Sub-normal profit happens when TR < TC and AR < AC.

Figure 1.3

Figure 1.3 has shown subnormal profit graph.