Learning Objectives
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# Learning Objectives - Compare perfect competition, monopoly, monopolistic competition, and oligopoly - Determine profit-maximizing output and price in each structure - Analyze deadweight loss and efficiency implications - Week 3: Production and cost concepts - Marginal analysis ## 1. Perfect Competition Many firms...
Learning Objectives
- Compare perfect competition, monopoly, monopolistic competition, and oligopoly
- Determine profit-maximizing output and price in each structure
- Analyze deadweight loss and efficiency implications
- Week 3: Production and cost concepts
- Marginal analysis
1. Perfect Competition
Many firms, identical products, free entry/exit, perfect information. Firms are price takers: P = MR = AR = D (horizontal demand).
Profit maximization: Produce where MR = MC (so P = MC in equilibrium). In long run: economic profit = 0 (normal profit).
2. Monopoly
Single seller, unique product, barriers to entry. Firm is price maker: faces downward-sloping demand, MR < P.
Profit maximization: MR = MC. Creates deadweight loss - allocative inefficiency.
Pricing: P > MC (market power), P > MR = MC.
3. Monopolistic Competition
Many firms, differentiated products, free entry. Short-run: can earn profits. Long-run: zero profit (like competition). Excess capacity: firms produce below minimum ATC.
4. Oligopoly
Few firms, strategic interdependence. Game theory: Prisoner's Dilemma, Nash Equilibrium, collusion.
| Structure | Firms | Product | Entry | Long-run Profit |
|---|---|---|---|---|
| Perfect Competition | Many | Identical | Free | Zero |
| Monopoly | One | Unique | Blocked | Positive |
| Monopolistic Competition | Many | Differentiated | Free | Zero |
| Oligopoly | Few | May differ | Difficult | Varies |
Q1: In perfect competition, what is the firm's demand curve?Horizontal at market price (perfectly elastic). P = MR = AR = D. Q2: Why does monopoly create deadweight loss?Monopoly charges P > MC, reducing quantity below socially optimal level. Q3: What is excess capacity in monopolistic competition?Firms produce below minimum ATC - have unused capacity unlike perfect competition. Join Discord PreviousProduction & Cost AnalysisNextPricing Strategies