Imperfect Competition
Question 1
The market is a monopoly, if only one company is a manufacturer of a certain type of product, which has no similar products (analogues). Under the current consumers of the monopoly cannot choose it, so they have to satisfy their demand by buying good monopolist.
Given the characteristics of the firm, which is a monopoly, we can conclude that the company meets all the total market demand alone. The demand curve the monopolist firm coincides with the demand curve of the market as a whole. It should be noted that the demand curve and the curve will average income (AR). This follows from the fact that
Since the demand curve has a negative slope, the marginal revenue curve is below the demand curve. The monopolist can sell each subsequent unit only at lower prices.
Under the conditions of perfect competition manufacturer is the recipient of the price, so the price set by the market and is fixed. According to the concept of perfect competition, at this price the firm can sell any quantity of the goods, so the demand curve in these conditions will be a straight horizontal line:
In contrast to the monopoly, when each successive unit of goods may be sold only if the price is reduced, in conditions of perfect competition, any quantity of goods to be sold at a price above the market. Thus, it can be concluded that the average will be equal to the company's revenue this price (P = AR = MR).
Question 2
In some countries, oil production is a state monopoly, since only the state has the right to develop mineral resources and mineral resources. However, in most countries, the company can sign a contract with the government of the oil. Examples of such companies are Shell, Chevron, Exxon Mobil and others. This market is closer to an oligopoly.
Car Market is quite competitive throughout the world. In the world there are hundreds of companies, large and small, that sell vehicles of different purposes. This market is not an example of a monopoly.
The diamond market in the 20th century was monopolized by De Beers, however, in the 1990's the impact of the monopoly has been weakened and the diamond market is not an example of a monopoly market.
Companies providing electricity transmission services for electric power grids are so-called "natural monopoly". As a rule, this is state-owned companies. Since power lines are critical for the normal functioning of the state, they cannot be privatized. Therefore, all offer the market for electricity transmission is concentrated in the hands of the state. This is a monopolistic market.
The market is not a monopoly of eggs. In many countries, there are hundreds of livestock and poultry companies, each of which offer to sell milk, meat and wool of animals, as well as feathers and eggs of poultry.
Summing up, the most similar to the monopoly is the market of electricity transmissions.
Question 3
A good example of a monopoly we face in almost all countries of the world is municipal transport. As a rule, there is only one company which rules city trams and buses. These companies are state companies. The purpose of such monopolies is not to maximize its profit. Since the municipal transportation is an extremely important area of city life, it is not possible to give this area completely in the hands of private investors. Once they decide to leave their transportation business, it will lead to a transport collapse in the whole city. Such problem just can’t be allowed. That’s why government set a monopoly on municipal transportation market, and it is ruled by city government.
Question 4
According to William Boyes, the economic profit is the difference between total revenue received from the sale of goods and services produced now, and the costs that the company incurred in the manufacturing process of this product (Boyes, W., 2014)
In the case of zero economic profit it is considered that the company will continue its activities in the market, as get a normal profit. If all the companies receive market rate of return, the industry is unattractive for entry of other firms. The best option for the company would receive a positive economic profit. The presence of positive economic profit means that the company uses its resources optimally (i.e., maximize revenues and minimize costs).
Thus, of the proposed four types of market closest to getting a zero economic profit is perfect competition. The market is perfectly competitive products offer price is dictated by the market. At this price the firm can sell any quantity. Short-term market equilibrium of perfect competition is equal price products, the marginal cost and marginal revenue. In the long run you need to average total costs in the short term are equal to minimize the long-term average total cost. In other words, the balance of the market of perfect competition is defined by:P=MC=MR=ATCmin=LATCmin
This implies that the company will not receive excess profits, and normal profits (that is, zero economic profit). Therefore, this market will be unattractive to the entry of new firms into the industry.
References
Boyes, W. (2015). Economics (p. 519). S.l.: Cengage Learning.
