The Pros And Cons Of Perfect Competition

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Register to read the introduction… As figure 1 shows, due to the firm being a price taker, the demand curve for the single firm is a horizontal line which is equal to the equilibrium price of the entire market. This shows the elasticity of demand is perfectly elastic meaning should a single firm decide to increase price, it will lose customers as they prefer to buy cheaper products in a perfect competition. “A monopoly offers no benefits to the consumer”, (Davis 2014) the producer however benefits more from monopolies because they charge higher prices than the MC hence make more profit and are able to achieve economies of scale hence they can be contracted to produce more and earn more profits. The demand and average revenue curve for monopoly is flexible as it will be dependent on whether or not they charge higher or lower prices. This is because with a change in price, the demand also changes hence why the curve is downward sloping as seen from figure 2 this therefore leads to a producer surplus and an example is Monsanto which owns 80% of the seed market in America (Davis …show more content…
This is a market with a restricted freedom of entry but less than monopoly. Also, restriction varies from industry as some may be easier to get into than others. There is an interdependence of firms because they are affected by how opposition sets its price and also its level of output. Rather than a normal straight demand curve, oligopolies face a kinked demand curve, which for a particular firm is also their average revenue curve. The supermarket industry is one example of oligopoly. In this industry they sell both differentiated and undifferentiated products and this makes advertising imperative to this market because the competition in this market in centred on the marketing of their brand. There are two types of oligopolies, one which is collusive and involves firms merging to act like a monopoly. The second types of oligopolies are the competitors who compete with oppositions for a large market share (Sloman, Hinde and Garratt,

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