We accept

Advantages Of Perfect Competition Economics Essay

1. 0 Introduction

Economics involves the options people make when complementing their unlimited needs and wants with a scarcity of resources. The term "economics" comes from the Greek words "oikos", this means house, and "nomos", this means manager. Therefore the term originally referred to management of family members. Today, the word has been broadened to make reference to firms and most of society. Another way of looking at economics is to consider the field as a couple of tools for studying people and communities and the options that they make. Accountants are trained to render an account of financial activity for a firm. Lawyers are trained into a certain method of thinking in order to handle issues in a legal construction. Similarly, economists are trained to use a group of tools and principles to analyze why individuals, firms, governments and other teams behave as they certainly.

2. 0 Exactly what is a monopoly?

A firm this is the only one in the market, i. e. , no company produces a close swap. As a result, a monopoly will not lose all its demand when it raises price above marginal cost: it includes market power. A monopoly picks a point on the market demand curve.

2. 1 Definition

A situation when a sole company or group possesses all or practically all of the market for a given type of service or product. By definition, monopoly is seen as a an lack of competition, which often results high prices and poor products.

2. 2 Characteristics

Only a unitary seller in the market. There is no competition.

There are numerous buyers in the market.

The firm enjoys abnormal profits.

The seller control buttons the prices for the reason that particular product or service and is the purchase price maker.

Consumers don't possess perfect information.

There are obstacles to entry. These obstacles many be natural or manufactured.

The product doesn't have close substitutes.

2. 3 Benefits of monopoly

Monopoly avoids duplication and therefore wastage of resources.

A monopoly loves economics of level as it's the only supplier of product or service on the market. The huge benefits can be offered to the consumers.

Due to the actual fact that monopolies make whole lot of profits, it can be used for research and development and to maintain their status as a monopoly.

Monopolies may use price discrimination which benefits the financially weaker parts of the society. For example, Indian railways provide discounts to students exploring through its network.

Monopolies can afford to invest in latest technology and machinery in order to be efficient and also to avoid competition.

2. 4 Example

Now suppose the taxi company operated in a monopolistic market.

http://3. bp. blogspot. com/_c-n0myYucLQ/SraRbq3wfYI/AAAAAAAAAR8/dhHuZfFkLDk/s400/taxi+monopoly+market. jpg

Note that the taxi company can arranged the costs; the marginal income is no longer regular but declines with end result.

Because of the taxi company getting a monopoly they can set the costs and output. The organization has a diverging average and marginal revenue curve.

http://2. bp. blogspot. com/_c-n0myYucLQ/SraRsxD6YjI/AAAAAAAAASE/vaglo3Q7_Co/s400/Earnings+curve+imperfect+competitio. jpg

There are two types of profit():

- Normal profits: the minimum amount the money a firm must receive to transport on production of confirmed good. Normal profit is roofed as a cost.

- Abnormal earnings occur when earnings exceeds costs therefore the profit is higher than 0 (so actual profit is manufactured) so also when TR is higher than TC.

3. 0Conclusion

A monopoly organization is the only real retailer in its market. Monopolies occur due to barriers to entry, including: government-granted monopolies, the control of an integral source of information, or economies of size over the complete range of productivity. A monopoly organization faces a downward-sloping demand curve for its product. Because of this, it must reduce price to sell a larger quantity, which causes marginal income to show up below price. Monopoly firms maximize profits by producing the number where marginal income equals marginal cost. But since marginal income is less than price, the monopoly price will be greater than marginal cost, resulting in a deadweight reduction. Policymakers may react by regulating monopolies, using antitrust laws to promote competition, or by firmly taking in the monopoly and running it. Due to problems with each one of these options, the best option may be to adopt no action. Monopoly businesses (yet others with market electricity) try to raise their gains by charging higher prices to consumers with higher willingness to pay. This practice is called price discrimination.

4. 0 Introduction

Economists assume there are a variety of different potential buyers and sellers available on the market. This means that competition on the market allows for changes in cost with changes in demand and offer. Furthermore, for almost every product, there are substitutes. Thus if one product becomes very costly, a buyer can make a cheaper alternative instead. In a market with many potential buyers and sellers, both the consumer and supplier have equal capability to influence price. In some establishments, there are no substitutes and there is no competition. In a market that has only 1 or few suppliers of the good or service, the producer(s) can control price, meaning that a consumer does not have choice, cannot boost his / her total tool, and has have very little affect over price.

5. 1. 1 Perfect Competition

Perfect competition is a type of market where there are large numbers of burgers and retailers. The sellers sell equivalent or homogeneous products. Addititionally there is free accessibility and exist of the companies. Both the clients and sellers have perfect understanding of the market.

5. 1. 2 Definition

Perfect competition is defined as a market where there are many buyers and retailers, the product are homogeneous and sellers can easily get into and leave from the market.

5. 1. 3 Characteristics

Large volume of customers and sellers

Homogenous or standardized product

Free of entry and exit

Role of non-price competition: Perfect understanding of the market

Absence of carry cost

5. 1. 4 Benefits of Perfect Competition

Optimal allocation of resources

competition encourages efficiency

consumers charged less price

responsive to consumer desires: Change in demand, leads extra supply

5. 2. 0 Monopolistic Competition

The expression monopolistic competition seems to result from the combo of monopoly and perfect competition. Monopolistic competition has some characteristics of perfect competition and monopoly.

5. 2. 1 Definition

Monopolistic competition is market structure where there are large numbers of small sellers selling differentiated product but these are close swap products and have easy entrance into and exit from the marketplace.

5. 2. 2 Characteristics

Large quantity of vendors and buyers

Product differentiation

Easy access and exits

Non-price competition

Selling cost

5. 2. 3 Advantages of Monopolistic Competition

The Campaign of Competition (lack of Barriers to Entry)

Differentiation Brings Greater Consumer Choice and Variety

Product and Service Quality - Development

Consumers Become More Educated of Products

5. 3. 0 Oligopoly

An oligopoly market has some unique characteristics that can differentiate it from other market.

5. 3. 1 Definition

Oligopoly is a market structure in which there are just a few companies reselling either standardized or differentiated product and it restricts the entry into and leave from the market. Some or all the firms in the industry can earn abnormal profits over time.

5. 3. 2 Characteristics

Few amounts of firms

Homogeneous or differentiated product

Mutual interdependence

Barriers to entry

5. 3. 3 Advantages of Oligopoly

Big Businesses Gain Massive Profits

Ability to find out Prices

Long Term Profits

5. 4. 0 Monopoly

The word monopoly is a Latin word, where 'mono' means solo and 'poly' means sellers.

5. 4. 1 Definition

Monopoly is market structure in which there is a single retailer and large number of buyers and selling products that contain no close substitution and have a high admittance and exit hurdle.

5. 4. 2 Characteristics

One seller and large numbers of buyers

No close substitution

Restriction of admittance of new firms


5. 4. 3 Benefits of monopoly

Stability of prices

Source of income for the government

Massive profits

Monopoly companies offer some services effectively and effectively.

6. 0 Conclusion

Some companies have a monopoly in an industry, and therefore they have no competition. Monopolies are proven and guarded by the presence of obstacles to entrance of some sort. Monopolists can make long-run economic profits. In comparison to a properly competitive organization, a monopolist will produce fewer devices of a good and fee an increased price. This creates a deadweight loss, which reduces total surplus. You may assess a monopolist's profit or loss from a graph by locating the price of every good it provides the quantity of goods sold and the average total cost per good. Because monopolists haven't any competition, sometimes they become lazy and invite costs to go up. This X-inefficiency is bad for the shareholders of the company. In a very monopolistically competitive market, there are many firms, selling differentiated products, with reduced long-run obstacles to entry. Companies in the forex market cannot make long-run economic profits. However, companies can use advertising to increase demand because of their product and earn an increased return on their money. In an oligopoly, there are a little number of businesses that make interdependent decisions and are shielded by significant obstacles to entrance. An oligopoly can either take the form of a contestable market, where businesses remain competitive, or a cartel, where organizations limit creation with quotas and collectively behave like a monopoly.

More than 7 000 students trust us to do their work
90% of customers place more than 5 orders with us
Special price $5 /page
Check the price
for your assignment