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In: Economics

Q1. What are the conditions for a perfectly competitive market? What are the conditions for a...

Q1. What are the conditions for a perfectly competitive market? What are the conditions for a monopolistic market? What are the conditions for a monopolistic competitive market? What are the conditions for an oligopolistic market? How would you explain the differences among these market structures?

Solutions

Expert Solution

Perfect competition

i) very largr numbers of sellers ,so that individual firms have no market power ( means they can't affect market price Changing supply)

ii)Each firm produces identical product.

iii)Firm faces horizontal straight line demand curve

iv) horizontal straight line demand suggest,firm Profit Maximizing quantity is at ,P=MC

v) market price is determined by industry

vi)free entry and exit to market

Monopolist

i) only single seller

ii) produces good that has no close substitues

iii) complete market power

iv)faces downward sloping demand curve

v) Profit Maximizing quantity at MR=MC

vi) barriers to entey and exits to market

Monopolist competition

i) large number of sellers

ii) Produces differentiated product.each seller product is different somehow from others sellers

iii) Facing downward sloping demand curve but more elastic than monopoly/ Monopolist

iv) equilibrium at MR=MC

v)Free entry and exit to market

vi) some market power

Oligopoly

i) very few sellers

ii) each firm with a significant market share

iii) Mutual interdependence among firms

iv) due to Mutual interdependence,there is no exact relationship between price and demand,so there is no certain demand

v) barriers to entry and exit to market

vi) Large market power ,higher than Monopolistic competition but lower than monopoly


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