Characteristics Of Perfect Competition Economics Essay

Characteristics Of flesh outd rivalry Economics EssayMonopoly is a market structure that is the notwithstanding sole seller of a product and large issuing of buyers that have no close substitution and have a high meekness and exit barrier. A monopoly markethas no other solids can enter the market and compete with it to produce approximately good or service. For an example that gave by Vengedasalam, D., et. al. (2008, p.229) If want to subscribe television channel services, the only one will go is Astro. But if want to use Astro services, it have mixed options to choose from, and this industry is not a monopoly market.2.1 Characteristics of MonopolySingle seller in the market Monopoly is a scathe maker in the firm which has the power to control the footing. In the proof of the auxiliary theorem Jackson, J. (1998, p.22.5), price maker is a seller of a trade good that is competent to make a motion the price at which a commodity sells by changing the amount it sells.No Clos e SubstitutesIt means customer or buyers could not knock any substitute for the product. If the buyer can find out, then this product is no more in monopoly. In others way to describe, a monopoly cannot cost if in that respect is a competition or any substitute product.Restriction of gateway of modernistic firms In a monopoly market, in that respect be strict barriers to the entry of new firms. Barriers to entry atomic number 18 natural of legal restrictions that restrict the entry of new firms into the industry.Average and Marginal Revenue Curves Under monopoly, average gross is greater than bare(a) revenue. Under monopoly, if the firm wants to increase the sale it can do so only when it reduces its price.2.2 Types of Monopoly2.2.1 Natural MonopoliesOne firm can produce at a lower cost compared to what two or more firms could produce.2.2.2 Government- Created MonopoliesGovernment creates monopolies to prevent firms from entering into a market. This can be done through di fficulty in obtaining license to operate in the market or providing patent and secures to a monopoly firms. There are some legal barriers that are government franchise, government license, patent, copyright and control over raw material.2.3 Monopolys RevenueA monopolists marginal revenue is always less than the price of its good. (According from N. Gregory Mankiw, principle of micro economics fourth edition pg. 317), shows the example how the monopolys revenue might depend on the amount of water produced.CUsersTOSHIBADesktop123.jpgTable 1 A monopolys Total, Average, and Marginal RevenueTable 1 shows a run that is important for understanding monopoly behavior A monopolists marginal revenue is always less than the price of its good. For monopoly, marginal revenue is lower than price because a monopoly only faces a downward-sloping demand curve.CUsersTOSHIBADesktop123a.jpgFigure 3 Demand and Marginal-Revenue Curves for a MonopolyThe demand curve shows how the quantity affects the pri ce of a good. The marginal-revenue curve shows how the firms revenue changes when the quantity increases by 1 unit. Marginal revenue is always less than the price because the price on all units sold must fall if the monopoly increases doing2.4 Profit maximisationIn this graph shows the profit maximization for a monopoly. The point of A is the intersection of the marginal-revenue curve and the marginal-cost curve determines the profit-maximizing quantity. All this curves persuade all the information we need to determine the level output that a profit-maximizing monopolist will choose.CUsersTOSHIBADesktop123b.jpgFigure 4 Profit Maximization for a monopolyA monopoly maximizes profit by choosing the quantity at which marginal revenue equals marginal cost (point A). It thenuses the demand curve to find the price that will induce consumers to buy that quantity (point B). Thus, the monopolists profit-maximizing quantity of output is determined by the intersection of the marginal-revenue curve and the marginal-cost curve.2.4.1 A Monopolys ProfitCUsersTOSHIBADesktopMicro engagement diagram20130222_121054.jpgFigure 5 The monopolists ProfitThe area of the box BCDE equals the profit of the monopoly firm. The height of the box (BC) is price minus average total cost, which equals profit per unit old. The largeness of the box (DC) is the number of units sold.3.0 Characteristics of Market StructuresIn a perfectly private-enterprise(a) market, the market structure is an interconnected feature or characteristics in which will affect the nature of competition and the price. For example, the volume and relative strength of buyers and sellers, the degree of collusion among them, level and forms of competition, the extent of product differentiation, and the ease of entry into and exit from the market. Market structures tinct to the hawkish environment within which a firm operates. Market structures divided into four basic types which is perfect competition, noncompetitive co mpetition, oligopoly and monopoly.3.1 Perfect CompetitionPerfect competitive is defined as a market in which there are many buyers and sellers, the products of selling are homogeneous, and sellers can easily enter and exit from the market.3.2.1 Characteristics of Perfect Competition too large number of buyers and sellers Reynolds, R. L., (2005, p.2) points out that the idealized perfect competitive insures that no buyers and sellers has any power or ability to influence the price. The perfect competitive market is price takers.Products of selling are homogeneous The firm must sell homogeneous product. The products are where the buyers could not differentiate the products of one seller to other seller.Easy enter and exit From the research of Salvatore, D. (2009, p.245) demonstrated that resources or inputs are free to move among the various industries and locations within the market response to monetary incentives. So, there are no artificial barriers to entry into and exit from the industry.Perfect experienceledge Both of the sellers and buyers have perfect knowledge of the market. Sellers and buyers cannot influence with each others.Both of them must know the market price of the goods as given.Non-price competition Microeconomics, 2008 Author Dviga Vengedasalam, Karunagaran Madhavan, Rohana Kamaruddin point out the role of non-price competition is insignificant since many sellers sell the products at a immovable price and furthermore, the products are identical. The firms have no control over the price and their gods are identical, so there is no selling cost.3.3 MonopolyMonopoly is single seller in which sell the product is unique. Thus, there are large number of buyers and selling the products that have no close substitution and have high barriers between entry and exit. For an example that gave by Vengedasalam, D., et. al. (2008, p.229) If want to subscribe home telephone services, the only one will go is Telekom Malaysia.3.3.1 Characteristics of Monopo lySingle seller in the market Monopoly is a price maker in the firm which has the power to control the price. In the proof of the auxiliary theorem Jackson, J. (1998, p.22.5), price maker is a seller of a commodity that is able to affect the price at which a commodity sells by changing the amount it sells.No Close Substitutes It means customer or buyers could not find any substitute for the product. If the buyer can find out, then this product is no more in monopoly. In others way to describe, a monopoly cannot exist if there is a competition or any substitute product.Strong barriers to the entry into the industry exist In a monopoly market there is safe barrier on the entry of new firms. Monopolist faces no competition. The monopolist has absolute control over the production and sale of the commodity certain economic barriers are imposed on the entry.3.4 Monopolistic CompetitionMicroeconomics, 2008 Author Dviga Vengedasalam, Karunagaran Madhavan, Rohana Kamaruddin points out that the Monopolistic competition is a market structure in which there are large numbers of small sellers differentiated products but these are close substitute products and have easy entry into and exit from the market.3.4.1 Characteristics of Monopolistic CompetitionLarge numbers of seller and buyers It is less as compared to perfect competition. Because, monopolistic competition will produces different or unique products, so that they will have some control over the prices. Hence, each firm will follows an independent of the price output policy.Product differentiationEach firm produces a product that is at least slightly different from those of other firms. For example, if coffee is sold in coffee pack only, then it is perfect competition. But, if the same coffee is mixed with deep brown packaged in a box and label as Choco-Coffee, then this product is in monopolistic competition.Easy entry and exitThis is freedom to entry of new firms, but it is not as easy as perfect competition be cause it needs to make some differentiate product enter the monopolistic competition.3.5 OligopolyAccording to the preservearticles.com, Oligopoly is often referred to as competition among the few. In brief oligopoly is a kind of imperfect market where there are a few firm in the market, producing either and homogeneous product or producing product which are close but not perfect substitutes of each other.3.5.1 Characteristics of OligopolyFew numbers of firms The firms are few but the size of firms is large. In few firms will control the overall industry under oligopoly. For example of the oligopoly which is Unisem and Carsem.Homogeneous and differentiated product The firms in an oligopolistic industry may produce standardized or differentiated products. For example, DIGI or U-mobile produced by one firm is identical to another firm.Mutual interdependence The causality further stated that oligopoly always consider in choosing price, sales target, advertising budgets and other.Price rigidityAccording to the preservearticles.com, there is the existence price rigidity. Prices lend to be rigid and sticky. If any firm makes a price-cut it is immediately retaliated by the rival firms by the same practice of price-cut. There occurs a price-war in the oligopolistic condition.3.7The Differences between the various characteristics with the four types of market structureThe various characteristics between the four types of market structure which are Perfect Competition, Monopolistic Competition, Oligopoly and Monopoly have been discussed. The most important of these characteristics are differentiate in which will affect the nature of competition and the price. Therefore, table 2 shows the differentiation of the characteristics of the following market structure.Perfect CompetitionMonopolistic CompetitionOligopolyMonopolyBarriers to entryLowLowHighVery HighNumber of ProducersManyManyFewOneTypes of product governDifferentiatedStandardized or DifferentiatedUniqueExampleFrui t Vegetables100 PlusCarsemAstroTable 2 Characteristics of market structure4.0 Conclusion and RecommendationAs my conclusion, I think that monopoly is the best in microeconomic. This is because monopoly is a form that is the sole seller of a product without close substitutes. It remains other firms cannot enter the market and complete with it.