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Economics - Case Study Example

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Economics

2. Competition- a perfectly competitive firm has no control on the competition as the entry and exit of new firms is not restricted. However a monopolist firm being dominant in its market can create entry barriers for new firms.
3. Supply and demand curves- a perfectly competitive firm faces a horizontal demand curve and an upward sloping supply cure. While in the case of monopoly firm it faces a downward sloping demand curve and its supply curve is dependent on the marginal cost and marginal revenue (as seen in the graph below).
4. Profit- maximizing output- a perfectly competitive firm maximizes its profit at the point where its marginal cost equals marginal revenue which in turn is equal to the equilibrium price. Whereas a monopoly firm maximizes its profit at the point where marginal revenue equals marginal cost and vertically locates the supply quantity on the demand curve (as seen in the graph below).
A2. Schumpeter has tried to elaborate and improve the definition of monopoly. The term has been misinterpreted and misunderstood continually. It is regarded as a taboo which equals to oppression and savage exploitation of resources. But it is important to understand that monopoly evolves mainly due to the large-scale structure of a business. This in turn is achieved by hard work and outstanding performance. Though he does not deny that there have been instances when the production is not improved despite the large-scale domination of the monopoly but this is not enough for backing up the common generalization associated with the term.
According to him a single-seller position gained by either patent or monopolistic strategy can not be termed as exploitation as in most cases they are innovators. They bring in the new commodities and build their markets.
In the case of perfect competition, where the market forces in equilibrium are disturbed by some external factor, then under old views it is assumed that the market itself reaches the new equilibrium. But ...Show more

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no participant can influence the price. In such a market there are many firms which are relatively smaller than the market size and the goods produced by all the firms are homogeneous. While all…
Author : bmueller
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