• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

Perfect competition and pure monopoly are useful benchmarks of extreme kinds of market structure.

Extracts from this document...


Perfect competition and pure monopoly are useful benchmarks of extreme kinds of market structure. Most markets lie somewhere between these two ultimate points. Practically, "in nearly half the 800 major product categories in UK manufacturing 70 per cent of the market is shared by the five largest firms in the industry."(ECONOMICS David begg) Quoting the definitions of the two types of market structure from John Sloman's Book---"Essentials of Economics", perfect competition is where there are very many firms competing. Each firm is relatively small enough to the whole industry so that no single firm can influence the market price by changing its output.. By contrast, monopoly is where there is only one firm in the whole industry and there is zero competition from within the industry. In other words, the firm is the industry. Thus the market demand curve is the firm's demand curve. Though major firms in real world would not operate under there two extremes, is still worth make some research on them. ...read more.


On the left side of point "e" where output is less than 3, MC curve is below than MR curve. (MR>MC) It simply means there will be a chance to add extra profit to total revenue by producing more units. "As long as MR exceeds MC, profit can be increased by increasing production."(Sloman)By contrast, when output level higher than 3, MC will exceeds MR. (MR<MC) obviously, under this position one more production will add negative profit to total revenue. Thus under a pure perfect competition, the point which firm can make maximum profit is where MC curve across MR curve(MC=MR).As shown before, each firm in perfect competition market has no choice but accept the market price as its own price, so that MR equal to Price(MR=P). Then P must equal MC. Thus the supply curve and the MC curve will follow the same line. Meantime, for price taker firm MR will the same as P (AR).The firm will make its maximum profit when is output at the level of Q. ...read more.


on each goods or services will be just equal to the society's real cost or sacrifice in producing that unit" (Price=Marginal Cost) (Market power&Economics welfare) When this situation is satisfied, total economics welfare is maximum. Hence it can be argue that allocative efficiency and economics welfare are all achieving maximum under perfect competition where MR equals to MC and P. At the equilibrium point B, the output will be made at the level of Qc. Thus at this level MR equal MC.The total revenue therefore is Pc B Qc 0.The total cost as showing on figure is B Qc 0 C. Producer makes a producer surplus as triangle B C Pc which is considered to be its profits. The area 0 A B Qc represents the total utility gained by the buyer of production. That is the amount the consumers are willing to pay. However the consumer actually are only paying the price at Pc so there is a consumer surplus of triangle A Pc B. "The producer surplus plus consumer surplus is the total economics welfare created by perfect competition market."(WEB-CT) ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our GCSE Economy & Economics section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related GCSE Economy & Economics essays

  1. Peer reviewed

    State the assumptions of perfect competition. How does a perfectly competitive industry work in ...

    4 star(s)

    In order to judge this we compare the marginal cost of a firm (MC), the marginal revenue (MR), the average cost (AC) and the average total cost of a firm (ATC). To get a clear understanding of this we use graphs such as: The short run supply curve for an

  2. &amp;quot;If real world markets can be made to resemble more closely the model of ...

    Finally farmers produce a range of homogenous products. King Edwards's potatoes from one farm are indistinguishable from King Edwards's potatoes from another. In Europe and in many countries around the world, farming is in certain instances not a perfectly competitive market.

  1. The structure of the airline industry.

    About Delta Delta was the first major airline to recently eliminate most of the commissions that it pays to travel agents per tickets sold. Travel agent commissions are one of the largest costs that an airline can control. This decision is creating a backlash among the travel agent community.

  2. Critically evaluate the perceived competitive starategies of the five clothing retail outlets, namely Edgars, ...

    "If we make a success here economically, then the rest of Africa will certainly benefit," said Erich Leistner, a research fellow at the Africa Institute. The South African investment trend has been growing since 1993, just after passage of an interim constitution signaled the death knell of apartheid and brought an end to sanctions.

  1. Kingfisher is the largest home improvement retailer in Europe and the third largest in ...

    Homebase is the second largest in the market and is owned by GUS and has changed its focus on the softer end of the market which means they have differing core activities compared to Kingfisher. Homebase and Focus don't operate outside of the UK which also makes it pointless in

  2. Competition Theory A. Outline the role of competition in ...

    In a free market competition would allow for perfect knowledge, so consumer would know the prices all sellers in the charge. B. Outline/Explain the model of perfect competition (p.c.) The Spectrum of Competition The spectrum of competition consists of five various types of competition as shown below and can be potentially formed within any type of market.

  1. Business Competition.

    in some case to some customers may be more important than price. Availability Availability of a product or service is also important feature of competitiveness. Staying open late so customers can come and shop after work, Sunday opening is an advantage for those who work long hours, maintaining stock availability,

  2. This report will establish the opportunities and threats presented to Sony by the EU ...

    have to consider that it not accessible as other EU countries but the people within it are just capable of buying Sony's goods. Finland: the 3rd smallest country in the EU with a population of 5,171.3 million but the market potential is far greater.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work