Perfect Competition: Market Structure

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Perfect competition is a market structure where there are many firms, none of which is large. Because there is freedom of entry and exit and perfect information, firms are going to make normal profits and prices will be kept low by competitive pressures. Also, in perfect competition market all companies. Moreover, the knowledge and information are perfect.

Monopoly is the polar opposite of perfect competition. Monopoly is a market structure in which a single market structure in which a single firm makes up the entire/dominates a market. This means that the firm determines the price in the market than accepts the industry. It is a “price maker”. A pure monopoly is a single supplier in a market. For the purposes of regulation, monopoly power
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Despite their similarities, these two forms of market organisation differ from each other in respect of price-cost-output. There are many points of difference that I will now note in my assignment.

Under perfect competition there are a lot of buyers and sellers in the market competing with each other. The single firm takes its price from the industry, and is, hence, referred to as a price taker. The industry is consisted of all firms in the industry and the market price is where market demand is equal to market supply. Each single firm must charge this price and cannot digress from it.

Monopolies can be form for a variety of reasons, including the following: if a firm has exclusive ownership of a scarce resource, such as Microsoft owning the Windows operating system brand, it has a monopoly power over this resource and is the only firm that can exploit it. Governments may grant a firm monopoly status, such as with the Post Office. The Royal Mail Group finally lost its monopoly status in 2006, when the market was opened up to competition. Producers may have patents over designs, or copyright over ideas, characters, images, sounds or names, giving them exclusive rights to sell a good or service, such as a song writer having a monopoly over their own material. A monopoly could be created following the merger of two or more firms. Given that this will reduce competition, such mergers are subject to close regulation
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Firstly, it is important to mention that the perfectly competitive market is perfectly efficient, which leads to the price being Pareto optimal, when any shift in the price would benefit one party at the expense of the other. The overall economic surplus is maximized, that by the way equals the sum of the consumer and producer surpluses. In a perfectly competitive market, the market dictates the price, therefore the suppliers can not affect the price of the good or service. The price of the good or service in a perfectly competitive market and the marginal costs of manufacturing that good or service are equal. Also, the prices are kept on its minimum because of the combination of (long-run) minimum average cost production and firms making only normal profits. Eventually, perfect competition refers to a definition of “survival of the fittest”. Firms that tend to be inefficient will be thrown out of a business, since such firms will not be able to do even normal profits. This issue inspirits firms to be maximum efficient, and, where possible, to invest in new improved

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