![]() There are no good substitutes for electricity delivery so consumers have few options. In the case of electricity distribution, for example, the cost to put up power lines is so high it is inefficient to have more than one provider. Public utility companies tend to be monopolies. As a result, the single producer has control over the price of a good – in other words, the producer is a price maker that can determine the price level by deciding what quantity of a good to produce. Monopolies are characterized by a lack of economic competition to produce the good or service and a lack of viable substitute goods. It is unlikely that a copper producer could raise their prices above the market rate and still find a buyer for their product, so sellers are price takers.Ī monopoly, on the other hand, exists when there is only one producer and many consumers. There are few differences in quality between providers so goods can be easily substituted, and the goods are simple enough that both buyers and sellers have full information about the transaction. For example, commodity markets (such as coal or copper) typically have many buyers and multiple sellers. In reality there are few industries that are truly perfectly competitive, but some come very close. This produces a system in which no individual economic actor can affect the price of a good – in other words, producers are price takers that can choose how much to produce, but not the price at which they can sell their output. In a perfectly competitive market, there are many producers and consumers, no barriers to enter and exit the market, perfectly homogeneous goods, perfect information, and well-defined property rights. Distinguish between monopolies and competitive firmsĪ market can be structured differently depending on the characteristics of competition within that market.Others argue that product differentiation satisfies consumer’s desires for variety and breadth of choice if pure competition prevails everywhere, homogeneity of products would mean lower costs.\) Some economists think that the wastes due to monopolistic competition are, in-fact, small. Much controversy and honest doubt surrounded these issues. Thus, he said, “I am happy to leave this argument to the sociologists.” 3. Boulding has doubted upon the significance of this value also. On the sociological side, it might be argued that advertising has itself an entertainment and cultural value, and that it promotes mass communication in the form of cheaper magazines, news papers, radio and television. On the other hand, under monopoly the firm has to spend a small amount on selling costs. Under monopolistic competition, the firm has to spend more on selling costs. Under monopoly and monopolistic competition, a firm cannot determine both price and output at the same time. 14 represents AR and MR under monopolistic competition. It means small fall in price, will lead to big increase in demand. ![]() Under monopolistic competition also, the revenue curves are different but in this case, the revenue curves are more elastic. It means revenue curves are less elastic. ![]() It means for a small increase in sales (demand), the monopolist has to reduce the price to greater extent. AR refers to price, MR refers to marginal revenue. But under monopolistic competition, there is imperfect knowledge on the part of buyers and sellers. Under monopoly, we assume that the sellers and buyers have complete knowledge regarding market activities. ![]()
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |