Q.
a) Distinguish the following types of market structures.
- Monopoly (4 marks)
- Monopolistic competition (4 marks)
b) Show the equilibrium position of a firm and industry under perfect competition in short-run and long-run (12 marks)
(20 marks, 2014 Q4)
A.
a) Earlier posts for monopoly and monopolistic competition are referred.
b) Perfect Competition in short-run and long-run have been discussed here. In short-run, there is still profit to make and in the long-run, marginal profit equals to marginal cost because the competition forces the price down. At this stage, the economy attains Pareto Efficiency.
Hence, at long-run the survival of the firm really rely on its efficient running to bring the cost down in comparison to the competition. Thus, the cost of production issue would touch on economics of large scale production. However, if the market is unable to absorb the large production, it is also not feasible. Therefore, it is very important for the firm to first produce in short-run with profit and reinvest the profit into marketing so as to increase market share. It is only with large market share that during the long-run, the firm could sustain the production cost with large scale economics production to reduce cost.
See another write up on 吃虧 and Pareto Efficiency.
Ref:
Earlier posts.