Monopoly Vs Perfect Competition
Monopoly Vs. Perfect Competition
A monopoly is a market structure in which there is only one producer/seller for a product. In other words, the firm on its own is the industry.
Perfect competition is a market structure in which all firms sell an identical product, all firms are price takers, they cannot control the market price of their product, firms have a relatively small market share, buyers have complete information about the product being sold and the prices charged by each firm, and finally the there’s a free entry and exit of firms. In this essay, I will attempt to compare face to face this two market structures, monopoly versus perfect competition.
To begin with, in a perfect competition, there are no barriers to enter or exit the industry. This means, anyone can establish a firm, and start producing and selling their own products, and likewise could leave the market if they wanted to. However, in a monopoly, new firms are almost impossible to emerge because they face many obstacles so it is difficult for them to introduce their products to the existing market. The problems they could face are called barriers to entry. The barriers could be natural barriers to entry, which occurs when large firms (monopolies in this case) are more efficient than being small, or it could be artificial barriers to entry, which are those created by a powerful monopoly purposefully to restrict competition.
In a perfect competition, no one firm or consumer will have any power to influence the market price of a product. If a firm did try to increase the price of the product above the market price to increase their profits, they would be lose customers to rival producers and soon go out of business. Therefore, they are all known as price takers. However, since a pure monopoly controls the total supply of the whole industry, they may use this power to restrict market supply to force up the market price and earn excess profits, also known as abnormal profits. Therefore, a
A monopoly is a market structure in which there is only one producer/seller for a product. In other words, the firm on its own is the industry.
Perfect competition is a market structure in which all firms sell an identical product, all firms are price takers, they cannot control the market price of their product, firms have a relatively small market share, buyers have complete information about the product being sold and the prices charged by each firm, and finally the there’s a free entry and exit of firms. In this essay, I will attempt to compare face to face this two market structures, monopoly versus perfect competition.
To begin with, in a perfect competition, there are no barriers to enter or exit the industry. This means, anyone can establish a firm, and start producing and selling their own products, and likewise could leave the market if they wanted to. However, in a monopoly, new firms are almost impossible to emerge because they face many obstacles so it is difficult for them to introduce their products to the existing market. The problems they could face are called barriers to entry. The barriers could be natural barriers to entry, which occurs when large firms (monopolies in this case) are more efficient than being small, or it could be artificial barriers to entry, which are those created by a powerful monopoly purposefully to restrict competition.
In a perfect competition, no one firm or consumer will have any power to influence the market price of a product. If a firm did try to increase the price of the product above the market price to increase their profits, they would be lose customers to rival producers and soon go out of business. Therefore, they are all known as price takers. However, since a pure monopoly controls the total supply of the whole industry, they may use this power to restrict market supply to force up the market price and earn excess profits, also known as abnormal profits. Therefore, a