Market Structure and Pricing — Economics STD 11 — Question
Tamilnadu BoardEnglish MediumSTD 11EconomicsMarket Structure and Pricing2 Marks
Question
Explain long-run equilibrium in perfect competition.
✓
Answer
Similarities :
The motive of both the type of market is profit maximisation.
Condition for equilibrium is MC = MR
Dissimilarities :
Perfect Competition:
Price taker. As the contribution of a single seller is less he cannot determine the price
At equilibrium MC = MR = AR (Price)
AR curve is perfectly elastic and horizontal to X-axis. MR curve is equal to AR and coincides with AR. AR = MR
Equilibrium is attained at increasing marginal cost conditions.
In the short – run the firm earns super normal profit. In the long run, attracted by super-normal profit new firms enter the industry, which results in normal profit.
The firms produce optimum quantity of output.
Price discrimination is not possible, because of the perfectly elastic demand curve.
Output is maximum and price is minimum.
Possibility for consumer’s surplus.
Monopoly:
Price maker. As the firm and industry remains the same, producer fix price for his product.
At equilibrium MC = MR < AR (Price)
AR curve is a downward-sloping curve. MR falls below AR.
Equilibrium can be attained during increasing, decreasing and constant marginal cost conditions.
In both short-run and long-run the firm earns super-normal profit because of the barrier to entry.
The firm produces less than the optimum quantity of output.
Price discrimination is possible.
Output is minimum and price is maximum.
As the price is high there is no possibility for a consumer’s surplus.
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