COMPARE THE FEATURES OF PERFECT

COMPETITION AND MONOPOLY MARKET STRUCTURES

Group : 01

LOGO
Economics Group Presentation HND: Qs 03 BCAS- Jaffna

05.03.2014
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GROUP MEMBERS

KADOTGAJAN BAKEERATHAN

SUMAN

VINOJ

SAKEESAN

CONTENTS

1. Introduction. 2. Perfect Competition Market. 3. Monopoly Market. 4. Compare And Contrast. 5. Conclusion.

Introduction

Definition of Perfect competition market. Definition of Monopoly market. Characteristics of Perfect Competition market. Large member of buyers and sellers. Free entry and exit. Both buyers and sellers are price takers. Can earn ordinary profit in long term.

Introduction cont.
Characteristics of Monopoly market. Single seller No close substitutes Barriers to entry Can earn Abnormal Profits Compare and Contrast. Conclusion.

Perfect Competition Market

Perfect competition is the market in which

there are large number of buyers and sellers.

Characteristics of Perfect Competition Market

Large member of buyers and sellers.

Free entry and exit. Perfect knowledge.

Identical product. No government intervention. Both buyers and sellers are price takers.

Can earn ordinary Profit in Long Term

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Profit-Maximizing Level of Output

The goal of the firm is to maximize profits.

Profit is the difference between total

revenue and total cost. A firms Equilibrium point is MC=MR

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Profit-Maximizing

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Shutdown
A short-run decision not to produce anything because of market conditions If shutdown in short-run, must still pay fixed cost

Exit
A long-run decision to leave the market If exit in long-run, zero costs

Sunk cost
A cost that has already been committed and cannot be recovered
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Zero-Profit condition
The process of entry or exit is complete remaining firms earn zero economic profit Zero economic profit occurs when P=ATC

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What is Monopoly?

Monopoly is a market situation where there is only a single seller with complete control over an industry. The main cause of monopolies is barriers to entry- other firms cannot enter the market Factors of Monopoly 1. Resource 2. Government 3. Natural factors

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Characteristics of Monopoly Market

Single seller Lack of Perfect knowledge No close substitutes Barriers to entry Price discrimination Price maker Can earn Abnormal Profits
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Monopoly

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Deadweight loss due to Monopoly

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Monopoly's Revenue
Quantity Price 0 1 2 3 4 5 6 7 8 11 10 9 8 7 6 5 4 3 Total Revenue 0 10 18 24 28 30 30 28 24 Average Revenue ------10 9 8 7 6 5 4 3 Marginal Revenue ----10 8 6 4 2 0 -2 -4

Summary
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Comparison

Comparison

Similarities

Differences
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Similarities
1. Towards Maximum Profit 2. Equilibrium Condition: MC = MR .

Perfect Competition Market

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Monopoly Market

Similarities cont.
3. Determination of Price .

Perfect Competition Market

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Monopoly Market

Similarities cont.
4. Cost Curves .

Perfect Competition Market

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Monopoly Market

Similarities cont.

5. Can earn economic profits in the short run.

Perfect Competition Market

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Monopoly Market

Differences
Perfect Competition
Large numbers of firms and buyers A single firm cant effect the price

Monopoly
Single firm with less buyers A single firm can effect the price

Producer is Price Taker .

Consumers Sovereignty (Power) exists No barriers to enter the market

Price maker .
Producers Sovereignty Barriers to enter the market

Perfect Competition Market

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Monopoly Market

Differences cont.
Perfect Competition Price Discrimination is not possible Equilibrium Pricing Condition . Monopoly Price Discrimination is possible

Perfect Competition Market

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Monopoly Market

Differences cont.
Perfect Competition Close Substitution exists MR=AR=P=D Demand curves Shape (Ed ) . Monopoly No Substitutions Price > MC. Demand curves Shape (Ed < , >, = 1).

Perfect Competition Market

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Monopoly Market

Differences cont.

Perfect Competition Profit in Short Run Normal, Abnormal, Loss Profit in Long Run Normal

Monopoly Abnormal profit. Super Abnormal profit.

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Differences cont.
Perfect Competition : Normal, Abnormal, Loss in SR and Normal Profit in LR

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Differences cont.
Monopoly : Abnormal profit & Super Abnormal Profit. in SR and LR

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Conclusion
Several Real world examples Perfect Competition: Agricultural markets Fish market and vegetable or fruit vendors Free software vendors Street food vendors Monopoly Ceylon Petroleum Cooperation Sri Lankan Railways Drugs for Aids patients

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Perfect Competition & Monopoly in Contemporary scenario

Both markets doesn't exist Because; Governments influences Privatization/ Globalization Sales Promoting Strategies i.e. Ads So we can conclude that the Perfect Competition & Monopoly markets are conceptual markets in the Contemporary scenario.

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Questions?

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LOGO

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