Exercise 9-2: Comparing Market Structures

This last Blog entry for my current Microeconomics class will be a review and comparison of the four different forms of markets. I have created this table for easy comparison:

The Four Forms of Markets
	Perfect Competition	Monopoly	Monopolistic Competition	Oligopoly
Number of firms	Very Many	One	Many / Several	Few
Freedom of entry	Unrestricted	Restricted or blocked	Unrestricted	Restricted
Nature of product	Homogeneous (undifferentiated)	Unique	Differentiated	Differentiated or Undifferentiated
Implications for demand curve	Horizontal – price taker	Downward sloping and very inelastic	Downward sloping and elastic	Downward slope and inelastic
Average size of firms	Small to large	Large	Small to large	Large
Possible consumer demand	Perfectly elastic	Inelastic	Elastic	Kinked (elastic above the kink and inelastic below the kink)
Profit making possibility	Normal Profit	Economic Profit	Normal Profit	Economic Profit
Government Intervention	Productive and allocative efficiency	Productive and allocative inefficiency	Productive and allocative inefficiency	Productive and allocative inefficiency
Examples	Agriculture (Farms)	Canadian Pacific Railway	Oreo cookies (brand loyalty)	Mobile phone companies
Comparison	Opposite of Monopoly	Opposite of Perfect Competition	Common form of market	Common form of market

This graph shows, that in perfect competition, total profit is the distance between Average Revenue (AR) and Average Cost (AC).

The same graph as above, but this time for a monopoly market. The two break-even points are where AC meets AR and the maximum profit is achieved where MC meets MR.

The economic profit for the monopolistic competition represented in the purple area.

In this model of an oligopoly market, demand is relatively elastic above the kink and relatively inelastic below the kink. The price and best profit point will be at the point where the kink happens.