Perfect Competition vs. Monopoly

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# Perfect Competition vs. Monopoly - PowerPoint PPT Presentation

Perfect Competition vs. Monopoly. Microeconomics – Dr. D. Foster. How are they the same?. Profit maximizing. Same rule for profit maximizing. Cost structures. Calculate their economic profit as TR-TC. How are they different?. Monopoly. Perfect Competition. Only 1 firm. Entry barriers.

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### PerfectCompetitionvs.Monopoly

Microeconomics – Dr. D. Foster

How are they the same?
• Profit maximizing.
• Same rule for profit maximizing.
• Cost structures.
• Calculate their economic profit as TR-TC.
How are they different?

Monopoly

Perfect Competition

• Only 1 firm.
• Entry barriers.
• Mkt D = firm demand
• May earn LR econ profits.
• Allocatively inefficient
• Likely prod. inefficient
• Many firms.
• No entry barriers.
• Mkt D  firm demand
• Cannot earn LR econ profits.
• Allocatively efficient
• LR – prod. efficient
P

S

S*

Pe

D

Q

Qe

The Market

Perfect Competition

\$

MC

ATC

Pe*

MR* = d*

Pe

MR = d

q*

q

q*

A Firm

The market determines the equilibrium price.

Market supply increases and the market price falls.

For the firm, price = demand = MR.

LR equilibrium – firm earns 0 economic profit; is allocatively and productively efficient.

For the firm, find ATC to determine profit.

With a positive economic profit, firms enter.

ATC

Monopoly

Price

The firm = the market

MC

The firm must find MR.

P*

Find MC to determine Q*.

Price off the demand.

Find ATC to determine the firm’s economic profit.

Demand

Without entry, this persists in the long run.

Quantity

Q*

In LR – firm is allocatively and productively inefficient.

MR

### PerfectCompetitionvs.Monopoly

Microeconomics – Dr. D. Foster