perfect competition does not apply in two instances. What would suggest that the firms are not...

perfect competition does not apply in two instances. What would suggest that the firms are not perfectly competitive? What would be lost from studying these industries using only supply and demand analysis?

Solutions

Expert Solution

When firms are perfectly competitive no single firm is able to influence the market outcome. Also each firm earns zero economic profit in the long run. The implication is that output produced is at its maximum efficieny (minimum efficient scale) and the price charge is lowest.

Oligopolies and Monopolies are the two instances where markets are imperfect and firms produce less than what they produce in competition. The price charged is very high than marginal cost and this gives them an opportunity to earn economic profit in long run.

So a price increase and a quantity reduction as a result of market power suggest that the firms are not perfectly competitive. If these industries are studied using only supply and demand analysis, then we would not be able to get a clear picture of market. Perhaps monopolies and oligopolies have no supply function and each firm under oligopoly has a different demand faced by it.

We then identify incorrect market details if we use demand and supply analysis in case of imperfect competition.

Rahul Sunny answered 1 year ago

Next > < Previous

Related Solutions

what are the objectives of firms in perfect competition and oligopoly?

What sets monopolistic competition apart from perfect competition or oligopoly? In what ways do firms in...

What sets monopolistic competition apart from perfect competition or oligopoly? In what ways do firms in monopolistic competition behave as those in perfect competition and in what ways do they behave as firms in oligopolies or monopolies? Identify a product or service you purchase where sellers fit the definition of monopolistic competition? What is the size of the seller? Is the seller earning high profits or a normal return on investment? Does the seller use non-price competition? If so, which...

Problem 3: a. How does monopolistic competition differ from perfect competition? b. If monopolistically competitive firms...

Problem 3: a. How does monopolistic competition differ from perfect competition? b. If monopolistically competitive firms are making economic profits in the short run? What happens in the long run?

How do we correctly understand the claim that firms in perfect and also monopolistic competition would...

How do we correctly understand the claim that firms in perfect and also monopolistic competition would make zero profit in the long run?

a)What is the primary facet of perfect competition that does not allow for the presence of...

a)What is the primary facet of perfect competition that does not allow for the presence of long-run economic profits? Explain. b)Discuss why economists view a single-price monopoly market structure as inefficient. c)Airports typically charge a higher price for parking during holidays than they do during other times of the year. What type of pricing strategy is this an example of and why is it optimal? Explain. d)Would you expect the demand for a monopolistically competitive firm's product to be more...

Explain monopolistic competition. How is it similar to perfect competition? How does it differ from perfect...

Explain monopolistic competition. How is it similar to perfect competition? How does it differ from perfect competition?

Why is Perfect Competition the “best” form of market structure? Does Perfect Competition exist? Describe the...

Why is Perfect Competition the “best” form of market structure? Does Perfect Competition exist? Describe the features of a perfectly competitive firm. Provide examples to support your views.

4. Perfect competition vs. monopolistic competition: (a) What is the difference between perfect competition and monopolistic...

4. Perfect competition vs. monopolistic competition: (a) What is the difference between perfect competition and monopolistic competition? (b) Suppose the only long-run adjustment is free entry or exit of firms. What is the difference between the short-run equilibrium conditions faced by a perfectly competitive firm and a monopolistically competitive firm? How about the long-run equilibrium conditions?

The demand curve facing individual firms is _in monopolistic competition and ____ in perfect competition. Group...

The demand curve facing individual firms is ___________in monopolistic competition and __________ in perfect competition. Group of answer choices A) downward sloping; horizontal B) horizontal ; downward sloping C) downward sloping; downward sloping D) vertical; horizontal

The major difference between monopolistic competition and perfect competition is that firms produce differentiated products in...

The major difference between monopolistic competition and perfect competition is that firms produce differentiated products in the former and homogeneous products in the latter. How does product differentiation generate the differences between the two models?

Subjects