Perfect and imperfect competition
Perfect competition
Perfect competition
The condition of the perfectly competitive market:
- homogeneity: all firms sell an identical product for a given market
- atomicity: Both buyers and sellers are so many that they cannot influence the market price: they are price takers
- free entry and exit on the market: no barriers (natural or artificial) to new firms entering the market or firms to exit the market
- perfect information
- perfect mobility of inputs: no transaction costs
Monopoly
Monopoly
Additional exercise: A monopolist has the cost function TC(q) = 200q + 15q2 and faces the demand function given by p = 1200 -10q. Find the market price and quantity.
Solution here
Oligopoly
Oligopoly
- Cournot competition with 2 firms: more details here
- PS4, Ex 4, last questions:
- To find the maximum amount Bob is willing to pay for the license, we need to know what would be his profit if he was alone. If Bob was a monopolist, he would earn a profit of 450. Compared with the situation where he's sharing the market with Mark (profit=200), this is 250 more. So his max willingness to pay for the license is 450-200=250
- If Steve buys the licence, Mark retire but the market structure does not change: it is still a duopoly where each firm has a profit of 200. So the max Steve is willing to pay for the license is 200 at most.