NAME: ZUHAIR ZAIDI

COURSE: MICRO ECONOMICS

REG NO: SP 15 – EX 0012

TOPIC: IMPERFECT COMPETITION AND MONOPOLY

TEACHER: SYED ARSHAD HUSSAIN

IMPERFECT COMPETITION AND MONOPOLY

IMPERFECT COMPETITION

The Best of all monopoly profits is a quiet lifeJ.R. HICKS

Definition of Imperfect Competition

If a firm can affect the market price of its output, the firm is classified as an imperfect competition.

Imperfect competition prevails in an industry whenever individual sellers can affectthe price of their output. The major kinds of imperfect competitions are monopoly, monopoly, oligopoly and monopolistic competition.

Imperfect competitions does not imply that a firm has absolute control over the price of its product. Take the cola market, where Coca – cola and Pepsi together have the major share of the market, and imperfect competition clearly prevails. If the average price of other producers’ sodas in the market is 75 cents, Pepsi may be able to set the price of a can at 70 or 80 cents and still remain a viable firm. The firm could hardly set the price of $40 or 5 cents a can because at those prices it would go out of business.

GRAPHICAL DEPICTION

Figure 9-1 (a) reminds us that a perfect competitor faces a horizontal demand curve,indicating that it can sell all it wants at the going market price. An imperfect competitor, in contrast, faces a downward – sloping demand curve. Figure

(a) Firm Demand under perfect competition | Firm Demand under imperfect competition

(a) The perfectly competitive firm can sell all it wants along its horizontal dd curve without depressing the market price. (b) But the imperfect competitor will find that

Pri

ceQuantity

VARITIES OF IMPERFECT COMPETITORS

its demand curve slopes downward as higher price drives sales down. And unless it is a sheltered monopolist, a cut in its rivals’ prices will appreciably shift its own demand curve leftward to dd.

A modern n industrial economy like the United States is a jungle populated with many species of imperfect competition. The dynamics of the personal computer industry, driven by rapid improvements in technology, are different from the patterns of competition in the not so lively funeral industry.

MONOPOLY

Only seller in the market Entry of other firms is restricted by patents, etc They have absolute power over setting market price They produce a unique product They can make economic profits in the long run because they can set price

without competition.

MONOPOLY FORM

Total revenue is equalto the area 0PECQE,which forms the bluebox to the left…

produces where MC=MR(point A), but then reads up to the demand curve (point C) when setting price PE.

Total revenue is equalto the area 0PECQE,which forms the bluebox to the left…

produces where MC=MR(point A), but then reads up to the demand curve (point C) when setting price PE.

END OF IMPERFECT COMPETITION AND MONOPOLY