Summary For A Monopolistic Market

817 Words 4 Pages
There is a clear understanding that society is full of competitive markets and the temptation to get more. Getting more can ultimately become a bigger issue than expected for some businesses. Owning a business is a gamble in various ways form financial dilemmas to staffing problems to even remaining functional. How a business structure their facilities and operate will allow them the chance to find out what actually works best for them as well as their customers.
According to N. Gregory Mankiw, competitive market is “a market with many buyers and sellers trading identical products so that each buyer and seller is a price taker.” The structure of a market can be different depending on the features of competition within the firm. The perfect
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Gregory Mankiw stated, “The monopolistic market has very strong barriers to their entries, and this discourages market competition.” Consequently, the market will limit the output up to where the marginal revenue equals marginal cost (MR= MC) to maximize the proceeds. The price of the goods and services will be higher and the quantity produced will be lower than the equilibrium price and quantity of the market. The efficient equilibrium for a monopolistic market is where the average revenue equals marginal cost (AR=MC). The MC serves as the supply curve while the AR represents the demand curve. At the point where MR=MC, there is no proper maximisation of the surpluses for both consumers and …show more content…
Therefore, they have to accept the market prices and any quantity that such firms will supply should be at the market price, meaning both AR and MR is the same. Therefore, efficient equilibrium will be when, AR=MR=MC. The formula is in contrast with the monopolistic firm because it has to reduce its prices when it experiences an increase in output and the curve will slope downwards. When prices reduce, the MR will be less than the AR. It implies that the equilibrium for profit maximization will create efficiency loss. Hence, maximization of total proceeds will not

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