MCO - Comparing Market Structure Lesson

Comparing Market Structure Lesson

Monopolistic Competition

The monopolistic competitor maximizes profit where MR = MC. Therefore, it produces at Q_mc and charges a price of P (found on the demand curve) and earns zero economic profit in long run equilibrium. Since P > MC, the monopolistic competitor is not producing at allocative efficiency (Q_mc < Q_pc). Q_pc (this would be the quantity produced in perfect competition) represents the level of production society desires because it is where P = MC. Because Q_mc < Q_pc deadweight loss is present (equal to ΔABC). Furthermore, since, at Q_mc, ATC is greater than minATC, the monopolistic competitor is not producing at productive efficiency (which is represented by Q_minATC).

Perfect Competition

The perfect competitor maximizes profit where P = MC. Therefore, it produces at Q_pc and charges a price of P and earns zero economic profit in the long run. Since P = MC, the perfect competitor is producing at allocative efficiency and no deadweight loss is created. Furthermore, at Q_pc, ATC is at a minimum. Productive efficiency is achieved, also.

Market Structure Image

Arrow to the Right ->
Less Competition to More Competition
Monopoly, Oligopoly, Monopolistic Completion, Perfect Competition
Arrow to the Left <-
Less Concentration to More Concentration

Efficiency of Different Market Structures Video

View the following video to compare the graphs and efficiency of the market structures. To make the video full screen, click the double arrows at the bottom right corner of the object.

Market Structure Review Activity

Sort the characteristics into the correct market structures. Click 'next' to begin.

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