Price and output determination-Imperfect Competition
The Price and output determination-Imperfect Competition is explained below:
a) Monopolistic Market
b) Monopoly market
c) Oligopoly market
Characteristics of Monopoly
- Single sellers.
- Price discrimination
- No free entry and exit of firms/restriction
- Price maker
- AR and MR are not constant i.e. different
- Low selling cost
- Incomplete information
Characteristics of Monopolistic Market
- Many sellers and buyers
- Product differentiation
- Price maker
- Relatively easy market entry
- Large selling cost
- AR and MR are different
- Incomplete information
Price determination- Price is determined by the firm itself on the basis of its objective. Due to which firms are considered as a price maker.
Output determination- At the self-determined price, the output is determined at the condition for equilibrium:-
- MC= MR
- MC must cut MR from below
Profit situations:
- If AR>AC, firms are in “Abnormal profit” situation.
- If AR=AC, firms are in “Normal profit” situation
- If AR<AC, firms are in “loss” situation
Equilibrium of a firm can be shown by the following diagram:-
a) Short-run equilibrium
In the diagram, at a self-determined price,
Firm ‘A’ is in
TR=P × Q
=OP× OQ
=OQMP
TC=AC×Q
=OC×OQ
=OQNC
Profit= TR-TC
=OQMP-OQNC
=PMNC
The firm is in abnormal profit.
Firm ‘B’
TR=P×Q
=OQ×OP
=OQMP
TC=AC×Q
=OP×OQ
Profit= TR-TC
=OQMP-OQMP
0
The firm is in normal profit situation.
Firm ‘C’
TR=P×Q
=OP×OQ
=OQMP
TC=AC×Q
=OC×OQ
=OQNC
Profit= TR-TC
=OQMP-OQNC
=-PMNC
The firm faces loss.
b) Long-run equilibrium for monopoly
Short-run loss and normal profit are converted into abnormal profit by the firm due to its single seller nature.
Which can be shown by the following diagram:
c) Long-run for a monopolistic market
Short-run abnormal profit and loss are converted into normal profit by the firm due to its many seller nature. Which can be shown by the following diagram:-
Therefore the Price and output determination-Imperfect Competition is explained above.
You may also like Price and output determination-Perfect Competition
Leave a Reply