Question

Primarily, our discussions have been focused on the supply side of the basic economic model of supply and demand. We examined numerous models dealing with the matters of demand. This question is focused on the issues of supply. There are four basic industry formations: perfect competition, monopolistic competition, oligopoly and monopoly. Each is a gradation of a number of factors, but primarily it is about the ability of an individual firm to control the environment in which it operates. The topic of this question is very simple. Please ‘line up’ each of the industries, and provide me with your list of those characteristics of each that are the same, and those that are different. You should list them if they are similarities between one or two industries, and if they are dissimilar across one or two industries as well. Please remember that similarities of the decision making that takes place in a firm in each industry, and identify which are similar and which are dissimilar, and why. You should be concerned with the long run and the short run when considering your answers. You will note, I’m sure that it is important to identify for each of the industry formations, what the short run and the long run are, because the definitions in each industry are one of the distinctions. Please ensure that your answers are complete.

it does'nt matter what industries to be considered and lets say 2 to 3 industries should be considered.
thanks

Answer 1

1.Perfect competition and Monopolistic competition have Large Number of buyers and sellers.

Monopoly has a single seller and large number of buyers.

Oligopoly has few sellers and large number of buyers.

2.In Perfect Competition and Monopolistic Competition firms can freely enter and exit the market. There are no barriers for entry and exit.

Monopoly there are legal barriers. Firms cannot freely enter and exit the market. Resulting in the inherent feature of Monopoly a Single Seller. There are barriers for entry which is hard to overcome.

Oligopoly the entry is restricted though not completely restricted like monopoly. There are barriers for entry which can be overcome. As a result only a few firms exist due to restricted entry.

3. Perfect competition the firms have no control over the market price, they are the price takers. Each firm must passively accept the existing market price however it can sell as much as it wants at that price. Each firm has zero market power. Prevalence of a single price.

Under Monopolistic competition a firm fixes its own price of its product. Each firm decides its own price output policy without considering the reactions of rival firm.The firm is the price maker, this is because no other firm can produce and sell products under the same brand name and each firm offers a distinguished product. Non uniform and high price would be the pricing characteristic of monopolistic competition.

Monopoly a monopolist is a price maker and has control over the price and output decisions, the firm decides to fix any price it wants. A monopoly may charge different prices for different buyer or charge the same  price. A monopolist usually sets high price.

Under Oligopoly unlike monopolistic competition and monopoly, the oligopolist is dependent on other firms to take decisions. The oligopolist takes into account the actions and reactions of rival firms while deciding his price and output. There is price rigidity and high price in oligopoly. Prices do not move freely as change. If a firm lowers a price even other firms might follow suit and the firm which initiated the move may not gain the expected market share as the customers will get distributed among the firms. As a result there is no incentive for any firm to change its price that is why prices appear to be rigid.

4. Perfect competition the selling cost is almost ignorant . As the products of all the firms are identical or homogenous there is no incentive in promoting one's product as there is no differentiating factors among the products.

Monopolist Competition the selling cost is high for the firms. Each firm tries to differentiate their products, to bring to the buyers notice the distinctive features of their products and try to allure the customers towards their products. Product differentiation is the hallmark of Monopolistic competition and huge selling cost are incurred in achieving and maintaining this.

Monopoly the seller has no incentive to incur additional expense to sell one's product as there are no other firms in the industry who the consumers can resort to, there is no need to allure the customers.The Selling cost is negligible.

Oligopoly the firms incur high selling cost due to the cut throat competition in  the oligopolist market. Heavy Selling cost is borne to augment the demand for the firm' s product.

5.Perfect competition there is free mobility for the factors of production. The factors of production such as capital, labor can easily move between firms.

Monopoly Lack of mobility of factors of production.

Monopolistic Competition and Oligopoly there is immobility of factors of production.

6. Perfect Competition the products sold are homogenous. The products can be easily substituted. The products cannot be differentiated.

Monopolistic competition the products are not perfect substitutes the products can be differentiated. The products are heterogeneous.

Under Monopoly the products sold by the firm will have no close substitutes.

Under oligopoly the firms produce homogenous or differentiated products.

7.Perfect competition the firms Will earn normal profit both in the short and long run.Both in the short and long term the market price will be equal to the Average cost.

Monopolistic competition firms Will earn Normal profit or economic profit. In the long run will earn normal profit as new firms enter the market they will put downward pressure on the market price. The market price will be equal to the AC in the long run.

Under monopoly the firm Will earn supernormal profit both in the short run and long run. As no new firm will enter the market to put downward pressure on the price . The market price will be above the AC.

The oligopolist like the monopoly will earn supernormal profits as the price in oligopolist market is rigid and high. The market price will be above the AC