Imperfect Competition

Three main imperfect competition market structure we learn:

Monopolistic Competition
Oligopoly
Pure Monopoly

Imperfectly competitive firms are price makers so they have downward sloping demand curves, which means to sell more a firm must lower its price. This changes MR.

For imperfect competition, marginal revenue is NOT equal to the demand like in a perfect competition.

Graph_of_Demand_and_Marginal_Revenue_for_Imperfect_Competition.png

Elastic_vs._Inelastic_Range_of_the_Demand_Curve.png

Note

A monopoly will only produce in the elastic range.

Tip

A monopoly will only produce in the elastic range.

Total Revenue Test
If P falls and TR increases, demand is: ELASTIC
If P falls and TR decreases, demand is: INELASTIC

Monopolies are inefficient because they:

Charge a higher price
Don't produce enough (not allocatively efficient)
Produce at higher costs (not productively efficient)

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