Question

10 what are the four key interrelated structural characteristics that are necc=essary to exhibit perfect or imperfect competition behavior of the maker? explain each briefly

11 explain the short run and long equilibrium of a monopolistically competitive industry

12 illustrate the behavior of an oligopoly market using the ''kinked demand'' curve model

Answer 1

10. Perfect and Imperfect competition

We know that the perfect competition is considered as the pure competition in the market. A market is said to be perfectly competitive then the following conditions should be satisfied.

1. Homogenous goods and services produced in the market.
2. There is no preference between the sellers
3. The whole players of the market will be the price takers.

The imperfect market structure is the common market place in the real world. The main characteristics of imperfect competition are that;

1. There is differentiated goods and services sell in the market
2. Consumer have enough choice for the preferences of goods and services
3. Sellers have high degree of market power.

11. Monopolistic competition

We know that monopolistic competition is market structure there are large number of buyers and sellers in the market. There is differentiated product sell in the market, so firms have freedom to entry and exit. The freedom to entry and exits encourages more firms into the industry in the long run.

Short run Equilibrium

We know that the short run equilibrium under monopolistic competition is the condition where MR=MC. Here all firms in the industry earn super normal profits.

Long run Equilibrium

The super normal profits earned in the short run, because of freedm to entry and exits, so in the long run more firms attracts the industry. So in the long run firms earns only normal profits.

12. Kinked demand curve model

We know that kinked demand curve model of oligopoly market was developed by Paul M Sweezy. If the demand curve of the oligopolist is kink means that an entrepreneur reduces his price he expects that his competitor follow the suit, or matching the price cut. On this way, the demand in the market increases and share of the competitor unchanged. The important point here is that, the upper section of the kinked demand curve is more price elastic than the lower part of the curve. Due to the kink the MR curve is discontinues for some parts. The total profit is maximized under the kink. Graphically,