Perfect Competition and Monopoly Essay Example | Topics and Well Written Essays - 2500 words

Perfect Competition and Monopoly - Essay Example 1. The size of the firm relative to the market is small. Hence, it has no influence on price. The firm is a price taker. 2. The product is homogeneous meaning to the consumer the product of one seller is same as the product of other seller. 3. There is freedom of entry and exit for each firm. 4. There is free mobility of resources. 5. All the participants in the market have perfect knowledge, meaning that everyone is aware of his benefit, consumer knows prices, and producer knows cost and so on. If even one condition is not fulfilled, the market will not be perfect anymore, it will be imperfect. An extreme case of such imperfection is monopoly. Monopoly is that market in which there is only one seller (or a group of sellers acts as one - cartel) of a commodity that has no close substitute. The seller has complete control of the supply of the commodity and hence is the price maker. We shall now see where the equilibrium of the firm lies and also which conditions are necessary for it. Equilibrium of the firm We shall use the marginal revenue1 and marginal cost2 approach to study the equilibrium of the firm. There are two conditions to this equilibrium: 1. MR = MC 2. Slope of MR < Slope of MC. Price MC P T P MR=AR=P Quantity (output) 0 Z? Z As we can see in the above graph, there are two points where marginal revenue is equal to MC but at Z? if the quantity is increased, the firm is still earning profit. But after Z, the cost of per unit is more than its price. Hence Z is the equilibrium output. The equilibrium can be proved mathematically. Let Z be the output, TR the revenue and TC the cost. Profits are calculated as ? = TR – TC. To maximise the profits we need i.e. MR = MC, and i.e. Slope of MR < Slope of MC. Equilibrium in Perfect Competition and Monopoly in the Long Run As we are trying to see how both markets generate different profits in the long run, we shall assume that the market demand and costs do not change due to entry and exit of a firm from t he industry. Also, to simplify the analysis constant average cost is assumed. These assumptions give us MC = AC and the supply curve for perfect competition is equal to both costs. The equilibrium in perfect competition will be at the point where demand is equal to supply as this is where the price3 will set. The output will be according to this level. At this level price will be equal to MC and AC. In general, we can state the equilibrium in perfect competition as P = AR = MR = MC = AC Where P = Price of the commodity AR = Average Revenue MR = Marginal Revenue MC = Marginal Cost AC = Average Cost4. In case of monopoly the equilibrium will take place where marginal revenue is equal to marginal cost and the marginal cost curve cuts marginal revenue from below but there is an additional clause here that states that the marginal revenue will be less than the price. We can see both the equilibriums – for perfect competition and monopoly, in the figure. Comparison of Profit betwee n Perfect Competition & Monopoly The comparison can be seen in the figure above. In perfect competition the price is fixed. Only the output varies and therefore supply curve is horizontal. The equilibrium price for competitive firm is Pc, where MR=MC. But the output level is Qc where MC= AR, meaning supply is equal to demand. For monopoly, the equilibrium position is same, where MR=MC, but the output leve

Making Cigarrette Smoking Illegal Research Paper

Making Cigarrette Smoking Illegal - Research Paper Example This has been taken on by youngsters who are getting hooked on to this habit for all the wrong reasons. The legal aspects of cigarette smoking should therefore be understood before one can suggest that these need to be made illegal. This paper covers how smoking cigarettes is a bane all over the world, and how this problem seems to come up from different angles of the society which essentially disrupts the basis of optimism to cultivate within the different nations of the world. The manner in which youth is getting addicted to smoking is something that needs to be understood properly here. This is because cigarette smoking not only affects a young man or woman but also the ones who live with them (Lillard, 2005). The passive smoking element is therefore all the more significant to comprehend within the related thick of things. It would only be natural to understand where the problems come up from and how these will be resolved within the most apt way possible. It has been found out t hrough research that often times passive smoking of cigarettes is even more harmful than the ones who smoke regularly. When this research came about, many people did not believe it but with the passage of time, this has been proven with due research and evidence of study (Cook, 2007). The cigarette smoking domains in essence highlight the kind of issues that can come about and how these will mean problems for the people who smoke and the ones who take the brunt of such nuances. Cigarette smoking is not only a problem; it is indeed a serious anomaly within the society because the smokers are affecting it in more ways than one. They are not only creating concerns within their own health domains but also directly influencing the lives of others that surround them. Smoking essentially requires steps from different quarters and the need is to make sure that its legal status is looked upon. If the decision-makers can deem it as an illegal act, this will save the lives and health basis of a number of people around the world. How society views smoking is something that says a great deal about the society under question (Tong, 1987). This means that its different nuances are linked with its people who regularly smoke cigarettes. Their actions and undertakings depend largely on how much they smoke and what they make out of smoking in essence. This needs to be properly comprehended before one can outline the due role of the society within the shaping up of the smoking concerns. How media portrays the cigarette smokers needs to be given attention to as well. This means that the smokers are having a good time at the hands of the media in certain countries of the world. However, in other nations this is not the case. There are a few countries which have completely banned the sale and advertising of cigarettes, which indeed is a step in the right direction. But this does not end here as much needs to be achieved in the long run. The manner in which corporations are tackling this issue also needs to be understood (Raw, 1989). They are perhaps going overboard by highlighting aspects that work to their own advantage. This is a disservice to the society and should be comprehended as such. If the corporations and the media play their due role, then they can easily make smoking an illegal commodity for everyone, however this requires persistence by the media experts and the corporate giants. Similarly, the celebrities