Question

 Identify the key characteristics of perfect competition, monopoly, and oligopolistically competitive markets, discriminating between the three types of market structures. How do producers in each market maximize profit?  Examining the nuances of perfect competition, monopoly, and monopolistic competition, explain the implications of market efficiency, market power, and market entry in each?

Answer 1

Key Characteristic & Distinct Features :

1. Perfect Competition :

(A) Theoretically it doesn't exit.

(B) Generally firms are in small size

(C) Producers sell homogenous - identical product/service

(D) No Barriers for entry

(E) All producers have same information

(F) No sellers can influence the market price

2. Monopoly

(A) One firm capturing market share of more than 25%

(B) Lack of Substitute product/service

(C) High hurdles for entry

(D) No close competition

(E) Monopolist players decides the market price

(F) Unstable profit margins

(3) Oligopolistic

(A) Few large companies runs the product/service market

(B) Cross-awareness of competitor dealings

(C) Some differentiation available while majority the product features remains the same

(D) High price to get entry

(E) Players under this segment usually benchmark price

(F) Common in developed economies

Maximization of Profits :

(A) Perfect Competition : Under this segment where transparency is 100% and theoretically not exist. Firms can make profit at same scale or if the other producer forego the sell opportunity by which the current producer can maximize the profit.

(B) Monopoly Competition : Under this maximum profit can be achieved when marginal revenue is equal to marginal cost.

(C) Oligopolistic Competition : Although under this segment pricing is little difficult as its not easy to change the prices frequently. Ironically larger firms set the benchmark price which small firms follow. Technically large firm pricing determination and capturing profit is not based on few parameters.

Nuances and efficiencies of these three categories are highlighted in the features list.