Monopoly and Monopolistic Competition
What is a monopoly?
A monopoly is a market structure where a single firm is the sole producer and supplier of a product or service with no close substitutes, allowing significant control over prices.
How does a monopolist set prices?
A monopolist sets prices by choosing the output level where marginal revenue equals marginal cost (MR = MC). This typically results in higher prices and lower output than in competitive markets.
What are barriers to entry in a monopoly market?
Barriers to entry can include legal restrictions (patents, licenses), high startup costs, control over key resources, and technological advantages.
What is price discrimination in a monopoly?
Price discrimination occurs when a monopolist charges different prices to different consumers for the same product based on their willingness to pay, thereby increasing profits.
Are monopolies efficient?
Monopolies are generally less efficient than competitive markets. They can lead to allocative inefficiency (misallocation of resources) and productive inefficiency (higher production costs).
What is a monopolistic competition market?
A monopolistic competition market is a market structure where many firms sell similar but not identical products, allowing them some degree of market power.
How do firms determine prices in a monopolistic competition market?
Firms have some control over prices due to product differentiation. They set prices based on their costs, demand, and the degree of differentiation from competitors’ products.
What happens to profits in the long run in a monopolistic competition market?
In the long run, firms tend to earn normal profits because the entry of new firms (attracted by short-term profits) increases competition and drives down prices.
How do firms compete in a monopolistic competition market?
Firms compete on factors other than price, such as product quality, features, branding, customer service, and advertising.
Difference between Monopoly and Monopolistic Competition
The number and types of firms operating in an industry and the nature and degree of competition in the market for the goods and services is known as Market Structure. To study and analyze the nature of different forms of market and issues faced by them while buying and selling goods and services, economists have classified the market in different ways. The different forms of market structure are Perfect Competition and Imperfect Competition (Monopoly, Monopolistic Competition, and Oligopoly).