Question

Compare and contrast the market structures of pure competition and pure monopoly. In your answer, make sure you discuss the assumptions and evaluate the short and long run results of each market structure. (You may want to use graphs.

Answer 1

Answer--Comparison and contrast between pure competition and pure monopoly--A--In pure competition there are large number of buyers and sellers but in monopoly there is few numbers of buyers and sellers.

B. There is free entry and exit in pure competition where as in monopoly there is restricted entry.

C. In pure competition sellers are price takers whereas in monopoly sellers are price makers.

D.In pure competition sellers sell homogenous products whereas in momopoly market sellers sell different products.

E.There is no transaction cost in pure competition where as there is transaction money in monopoly market .

F.In pure competition market sellers have every and complete information about the product but in case of monopoly every information is confidential.

G.In pure competition sellers cannot influence the price of the commodity but in case of monopoly ,they can influence the price.

Assumptions of Pure Competition.

1. Perfect knowledge of commodity-It is type of market in which the buyers have complete knowledge of products which they are willing to purchase.

2.Large numbers of buyers and sellers-In Pure competition there are large numbers of buyers and sellers who sale and purchase homogenous products.

3.No selling cost-There is no involvement of selling cost for the comodity in pure competition.

4.No discrimination-In pure competition there is no discrimination of buyers and sellers .

5.Free entry and exit of firms-In pure competition entry and exit of the firm is not restricted.

Assumptions of Monopoly Competition.

1.Price maker-It is market condition in which sellers are price makers that means price of the commodity is decided by the firm.

2.Barriers for the entry-Any firm cannot enter in this market because entry in this market is restricted by the barriers.

3.Price discrimination-Thers is price discrimination in this market.

4.Single seller-There is single seller in this market ,large number of sellers are not available in this market.

Short Run results of pure competition--demand is completely elastic for an individual but not for the firm,and there is situation of MR=MC above AVC.

Long Run results of pure competition- an increase in demand creates economic profit in the short run and induces entry in the long run or vice versa.

Short Run result of monopoly-In short run monopoly firm will try to maximize the profits or it will try to minimize the losses by producing that output for which MC=MR.

Long Run result -In this situation the price and profits remains high.