Question

In: Economics

Perfect competition and monopoly are the two extremes of market structures. Discuss the difference between the...

Perfect competition and monopoly are the two extremes of market structures.

  • Discuss the difference between the markets.
  • Analyze the considerations for an entrepreneur thinking about entering either market. Use examples from a business you might consider opening one day.

Post your initial response (of at least 250 words) Be sure to respond to at least two posts from other students or your instructor. Your responses in the discussion board must be well-written according to APA. Finally, be sure to include in your initial post at least one reference using professional and scholarly references. Sources such as The Balance, EconomicsHelp.org, Investopedia, and other help websites are not acceptable).

Solutions

Expert Solution

Monopoly is a market situation where there is only one seller and all buyers depend on him . He is the price maker.He is in full control of the supply and demand is inelastic. Demand curve slopes downward.There is homogeneous product in the market and competition does not exist.In Monopoly P>MR=MC.Output is small as decided by the seller and there is profit in the market ie monopoly gain.

In Perfect competition there are large number of buyers and sellers and no single buyer or seller can change the price in the market.Sellers are price takers.Supply is made by large number of sellers and demand curve is perfectly elastic . It is horizontal to the X-axis .Product is homogeneous and P=MR=MC.Output produced is large as decided by MR=MC. Profit in the market is normal.

Sources -Differences between monopoly and perfect competition by M S Manesh , March 30th 2017.

Perfect competition is unreal and pure monopoly is not found . However monopoly elements are found in the markets.The considerations taken by an entrepreneur  to enter a monopoly market is to get away with competition as less competition will mean more profit.Another consideration may be setting a higher price as monopoly is price maker .Third consideration may be freedom of entry and exit .The business I might consider taking up is Teaching  on Skype.We can teach  people living in US or UK even if we are living in Asia or other backward places .

Two other posts from friends are -1)Consistent comparison between Monopoly and perfect competition by S E Skeath 1992.(2)Monopoly and perfect competition by W Kwasnicki .These articles claim that profits gained by firms depend on market structure.Monopolist tries to increase the price in order to earn more profit . Perfect competitions are unrealistic.


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