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Competitive Market vs. Monopolisitc Pricing

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A FIRM IN A COMPETITIVE MARKET MODEL TENDS TO MAKE ZERO ECONOMIC PROFITS WHEN CHARGING A PROFIT MAXIMIZING PRICE AND A MONOPOLIST HAS NO LIMIT TO THE AMOUNT OF PROFITS THAT CAN BE EARNED WHEN THEY CHARGE THE PROFIT MAXIMIZING PRICE.
WHY IS THAT?

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In a competitive market, all firms are price takers. They have no power to determine the price of their product. There are also no barriers to entry and exit. So firms will leave the market if ...

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The solution tries to explain the following: A FIRM IN A COMPETITIVE MARKET MODEL TENDS TO MAKE ZERO ECONOMIC PROFITS WHEN CHARGING A PROFIT MAXIMIZING PRICE AND A MONOPOLIST HAS NO LIMIT TO THE AMOUNT OF PROFITS THAT CAN BE EARNED WHEN THEY CHARGE THE PROFIT MAXIMIZING PRICE.

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Define and give an example of perfect price discrimination.

1- Define and give an example of perfect price discrimination. Explain how price (rate) regulation may improve the performance of monopolies. In your answer distinguish between (a) socially optimal (marginal cost) pricing and (b) fair return (average and total cost) pricing.

2- How does monopolistic competition differ from pure competition in its basic characteristics? From pure monopoly? Explain fully what product differentiation may involve. Explain how the entry of firms into its industry affects the demand curve facing a monopolistic competitor and how that, in turn, affects its economic profit. Why is there so much advertising in monopolistic competition and oligopoly?

3- Why do oligopolies exist? List 3 or 4 oligopolists whose products you regularly purchase. What distinguishes oligopoly from monopolistic competition? Why might price collusion occur in oligopolistic industries? Assess the economic desirability of collusive pricing. What are the main obstacles to collusion? Speculate as to why price leadership is legal in the United States, whereas price fixing is not.

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