Microeconomics question about market competition?
An identical good is sold in three markets that are isolated from each other. In Market A, there are many sellers of the good. In Market B, there are two sellers (they are not allowed to communicate price and quantity until the good is actually offered). In Market C, there is only one seller. All selleres have identical cost schedules. From highest to lowest order the markets in terms of the quantity of goods they sell in the market.
Answer:
In general, the answer to your question would be A then B then C.
Shellaroe is actually not correct in her labeling:
A is referred to as perfect competition, atleast assuming that there other conditions of perfect competition are met (such as perfect information, etc).
B is referred to as a duopoly. "Du" refers to the fact that there are two and "poly" refers to the two being sellers (Greek root "polein" refers to "sell"). This is a situation where 2 sellers compete for buyers.
C is referred to as a monopoly. "Mono" refers to one seller, and "poly" is as above.
The trick here is that the duopoly can actually generate an outcome which is the same as perfect competition. If the sellers are competing on quantity, as in the duopoly problem considered by Cournot, the resulting price and quantity will be intermediate between the monopoly and perfect competition. If the sellers instead compete on price as in the Bertrand duopoly, the outcome will be identical to that of the non-cooperative Nash equilibrium outcome (perfect competition) assuming there is no collusion. This also assumes that both firms have identical production technologies which is implicit when you say "identical cost schedules."
Additionally, it should be noted that if the monopolist faces a perfectly elastic demand curve (horizontal) the result will be the same as under perfect competition because the monopolist's profit-maximizing quantity will be where the marginal cost and demand curves meet (in a P-Q diagram). The monopolist will still generate positive producer's surplus but the demanders will pay their (uniform) marginal value and therefore see no consumer surplus.
Long, but correct explanations are rarely short in my experience. ;)
Good Luck!
A- Capitalism
B- Socialism
C-Communism
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Answer:
In general, the answer to your question would be A then B then C.
Shellaroe is actually not correct in her labeling:
A is referred to as perfect competition, atleast assuming that there other conditions of perfect competition are met (such as perfect information, etc).
B is referred to as a duopoly. "Du" refers to the fact that there are two and "poly" refers to the two being sellers (Greek root "polein" refers to "sell"). This is a situation where 2 sellers compete for buyers.
C is referred to as a monopoly. "Mono" refers to one seller, and "poly" is as above.
The trick here is that the duopoly can actually generate an outcome which is the same as perfect competition. If the sellers are competing on quantity, as in the duopoly problem considered by Cournot, the resulting price and quantity will be intermediate between the monopoly and perfect competition. If the sellers instead compete on price as in the Bertrand duopoly, the outcome will be identical to that of the non-cooperative Nash equilibrium outcome (perfect competition) assuming there is no collusion. This also assumes that both firms have identical production technologies which is implicit when you say "identical cost schedules."
Additionally, it should be noted that if the monopolist faces a perfectly elastic demand curve (horizontal) the result will be the same as under perfect competition because the monopolist's profit-maximizing quantity will be where the marginal cost and demand curves meet (in a P-Q diagram). The monopolist will still generate positive producer's surplus but the demanders will pay their (uniform) marginal value and therefore see no consumer surplus.
Long, but correct explanations are rarely short in my experience. ;)
Good Luck!
A- Capitalism
B- Socialism
C-Communism
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