Monopoly Market Characteristics of Perfectly Competitive Industry

Monopoly Market

Characteristics of Perfectly Competitive Industry

A perfectly competitive market is characterized as the market in which the firms as well as the consumers are the price takers. A price taking producer implies to the producer whose actions and decisions are not affected by the market forces but are only affected by the choice of the consumers. Similarly a price taking consumer refers to the consumers whose preferences are not homogenous and they have multiple choices. In short a perfectly competitive industry is a set of price taking producers. Other characteristics of the perfectly competitive industry includes

The perfectly competitive industry comprises of large numbers of buyers and producers, and an existence of large number of small firms.

The homogeneity of the product

The firms produce products that result to be the perfect substitutes of products produces by other firms

The producers and the firms of small and large sizes exercise a complete freedom of entry and exit from the market

The buyers, sellers and the produces are well informed about the market

Examples of a perfectly competitive industry includes the food industry

Profit Maximization Conditions for Perfectly Competitive Firms

In a perfectly competitive industry the firms as assumed to produce that quantity of output that maximized the economic profits. Economic profits are given by the differences between the total cost and total revenues of the firm. The producer makes this decision by analyzing the economic costs directly; this analysis is done by the identification of the greatest difference between the total cost and total revenue or by equalizing the MR and the MC.

Profit maximization by MC and MR is given by various conditions. If the MC is equal to the MC than the profits cannot be increased by increasing the number of units produced, because by increasing the productions the cost will be added up rather than the revenues hence the profit will decline. At larger or smaller output levels, marginal cost exceeds marginal revenue or marginal revenue exceeds marginal cost (Nguyen, Van Ness & Van Ness, 2007).

Characteristics of Monopolist Markets

A monopoly market is defined the market that comprises of a sole producer of the product that hase no close substitutes it has following characteristics:

It's an industry of a single seller, a single producer serves to be the sole producer of the overall industry output of the products that have no close substitutes

There are huge barriers for entering the industry, the new comers and innovation is not welcomed but is rather blockaded.

The dissemination of information is not ensured. The buyers are uninformed about the seller, the quality of the product and the cost of the product through market

The Profit Maximization Condition for Monopoly Markets

The profit maximization condition for a monopoly market is the point where the producer exercise the a profit on each additional unit he produces and sells when MR=MC > Q. The profit maximization condition will be observed in a monopoly (Nguyen, Van Ness & Van Ness, 2007)

The Difference in the Profit Maximization Conditions for Perfect Competitive and Monopoly Markets

The firms operate with an objective to maximize the wealth or the value of the firm. The firms try to adhere to the theory of firm in different time frames. Irrespective of the fact that a firm is operating in short run or long run it will strive to maintain the profitability at an optimal level. By considering the operations of a firm in short run the facets of the firm might be viewed from a different perspective Short run is the time frame in which a firm cannot altar its outputs and capacity in terms of designing products, the quality of suppliers and moreover the operations and equipments.

If a firm operating in short run is facing losses it still might continue its operations rather than shut down decision, depending on the degree and type of loss. Price is the sum of average fixed cost and average variable cost. If at a certain point the price of a good is greater than the AVC and if the price is equal to the AVC that the firm might continue its operations irrespective of short run losses. Because the AVC portion of the price covers the variable cost of the product and the firms can afford to produce the products (Yuan, Yuan, Deng & Yuan, 2008)