Question

At what point do all four market structures maximize profits? In the long-run do firms in a perfectly competitive market structure have an incentive to increase output? Please provide real-life examples in your response. Who determines the price for perfectly competitive market structures? Can you provide a real-life example in which monopolistic market structures should be scrutinized by Anti-Trust Authorities? What about Amazon?

Answer 1

1) Perfection competition maximizes profit when demand equals marginal cost. The firm earns normal profit.

Monopoly maximizes profits at the point where marginal revenue equals marginal cost. It charhes price according to the demand curve and is able to earn positive profits depending on the average cost curve.

Monopolistic firm maximizes profits where marginal revenue equals marginal cost.

Oligopoly maximizes profits at the point where marginal revenue equals marginal cost. However it resists to change in price.

2) In the long run the perfect competition firm earns normal profits. This doesnot give it any incentive to increase the output beyond that level. For instance the market for wheat where the price is determined by the market and in the long run each firm produces on the minimum point on the long run acerage cost and earns normal profit.

3) The market determines the price in a perfect competition market. The firms are just price takers in this case. For instance the government decides the market price of wheat.