Market Structure characteristics Q4

Q.
a) Explain the characteristics of the following market structure. Support your answer with examples.

i) Perfect competition. (4 marks)

ii) Oligopoly. (4 marks)

b) Differentiate monopoly and monopolistic competition in terms of:-

i) Characteristics. (6 marks)

ii) Long-run equilibrium position. (6 marks)

(20 marks, 2013 Q4)

A.
a) For market structure, refer here.

b) Monopoly versus monopolistic competition in 2014 Q4 posted here.

However, in this question, it specifically asked for characteristics as differential elements in these two market structures (i) and their long-run equilibrium positions (ii).

i) Characteristics of monopoly that differ from monopolistic competition are shown below in chart form.

The key differences between Monopoly and Monopolistic Competition are:

1. Monopoly is one supplier/producer versus many or multiple suppliers/producers for monopolistic competition, e.g. water/electricity supplier as compared to car producers/restaurants. The substitute for monopoly is none, but there may not be immediate similar substitute to monopolistic competition, there are about similar products for the same use. For example, going to different restaurant for almost similar type of dishes.
2. There is likely barrier to entry for monopoly as government may restrict entry with regulations or permits. There may be special privileges like for 'bumiputra only' as national appointed supplier, etc. Whereas, for monopolistic competition, it is fierce competition and although there may be barrier to entry (like technology), other suppliers/producers are able to compete in the market. Example, there can be different brands of cars, although they are of the same use, and some may receive subsidy from the government.
3. As monopoly is dominating the market share, hence it is usually huge in size as nobody else is doing the same thing. Whereas, due to competition and probably cost elements, monopolistic competition must be lean and reactive to market demands. They cannot be too large to impede its responses to market competition.

ii) Long-run equilibrium positions of monopoly and monopolistic competition.

Monopolistic Profit
A monopoly can sustain its profit in the long run
A monopoly can increase its profit by increasing demand: advertisement
A monopoly can increase its profit by lowering its costs
A monopoly could benefit from economies of scale

The Case of Natural Monopoly
When the economies of scale are extensive, as a result of competition, one firm could gradually expand and price other competitors out of the market and eventually end up being a monopoly.
That is a case where the downward sloping segment of the long-run average total cost extends to or beyond the market demand (curve).

Ref:
Microeconomics Eco101
http://www.oswego.edu/~atri/e101monopoly.html