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TUTORIAL 2
Name ZAREEN AAMIR
Ic Number / Matric Number / Passport Number 2022.9.MA01.0014
Course/ Program MASTER IN BUSINESS ADMINISTRATION
(ENGLISH)
Subject & Code of Subject MANAGERIAL ECONOMICS (MBME 130)
Lecturer’s Name MUHAMAD FAIROS B MOHAMAD SHAH
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Q.1 Giving some relevant examples, write short notes on the following market structures:
i. Perfect Competition
ii. Monopoly
PERFECT COMPETITION
A market structure where multiple firms/companies offer similar/homogenous
products is known as perfect competition. Due to access to information and freedom
of entry & exit, businesses will generate regular profits and due to competitive
pressures, prices remain low.
Characteristics of Perfect Competition
Salient characteristics of Perfect Competition as depicted in
figure below-
Large Market
Freedom to Cheap and
enter or exit the Efficient
market Transportation
PERFECT
COMPETITION
Perfect
Homogenous
Information
Market
Availabilty
Lower
Restriction and
obligations from
governments
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Figure-1 Salient Characteristics of perfect competition
Constancy of the demand & supply chain in the market is maintained by
large number of buyers & sellers.
Buyers are unable to differentiate between available products as all of
them have same features & price. Therefore neither products nor sellers
are preferred on each other.
Due to low start-up & production costs and high demand , its easy to enter
in market. However high competition make survival of few firms difficult
as there is high competition. Therefore they are free to exist and
immediately replaced by new firm in the market.
Less governmental barriers for sellers allow them to sell their products
freely in market . Instead of regulations , prices are fluctuated according to
demand &supply chain
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Manipulation of market either by seller or buyer is not possible as seller
has complete access of technological requirements , knowledge of
required cost and clear picture o supply and demand. In same fashion
buyer is aware of products’ features ,quality , features and prices.
Cheap & efficient transportation not only make it possible to decrease the
products prices to lowest level.
Examples
Few examples depicting perfection competition are as follow:-
Agriculture market where farmers from all over the country participate to
sell similar products i.e wheat ,apple mangoes etc
Fast food Street where vendors sell homogenous food i.e burgers .
Consumer is fully aware of price
Foreign currency exchange where rates are similar and known by all
stake holders
Like two sides of coin , it also have advantages and disadvantages . Lets have a look
on some of them:-
PERFECTION COMPETITION
Advantages Disadvantages
Theoretically ideal market structures It is ideal market structure that is theoretical or
hypothetical concept of economics whose existence in
the real world is negligible
Focus is on Customer Adding features or values to product is not wise
decision as revenue remain same if price is maintained.
On other hand increase in price will let customer to
switch to some other seller.
As seller has no pricing power so it Heavy competition among sellers in situation of easy
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become almost impossible/or negligible entry and exit enhances pressure on sellers.
to exploit consumers
Features, rates and quality of products Existing sellers always have edge over new commers as
remain similar everywhere they have established their reputation .
Low cost for start-up,
advertising ,production, marketing etc
make it easy for seller to enter in
market .Similary to exist there is no
obligations to follow.
In short it is theoretical market structure where there is no direct competition exist between
companies or sellers. Instead, many retailers /sellers exist in the business that trade /sell
homogenous/similar product at same time . Thus profit margin is limited while maintaining
control over market prices.
MONOPOLY
A market with a monopoly is one where a single business (or manufacturer) is the only source
for a given commodity or service. Due to the lack of competition, this company is able to
establish its own prices and so has complete control over the market. By offering goods (or
services) with few close substitutes, the monopolist hopes to make large profits.
Numerous nations reject monopolies because they tend to concentrate money and power with a
single seller. Furthermore, these vendors may take advantage of customers by selling subpar
goods at exorbitant costs. Government rules or the opening of the market to competition can end
a monopoly.
Features of Monopoly
Following are some major features of monopoly
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A monopoly occurs when there is only one vendor offering distinctive goods or
services. Because the monopolist has complete control over the market, it sets
prices rather than simply absorbs them.
Due to the lack of near substitutes, low levels of competition, and hurdles to entry,
monopolists can aim to maximise profits.
The Lerner index, concentration ratio, price discrimination policy, profit rate, and
Herfindahl-Hirschman index can all be used to assess monopoly power.
There are several different types of monopolies, including simple, pure, natural,
legal, and public.
Maximizes
profits
Becomes
the Sets prices
industry
MONOPOLY
Poses high
Lacks close
entry
substitutes
barriers
Figure-2 Features of Monopoly
Examples of Monopoly
Real life examples of monopoly are
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Natural gas , electricity ,utility companies in any country
Railway service provided by government
Monsanto & ConEd
American Tobacco Company
Carnegie Steel Company
Luxottica
Google
At this stage its time to conclude discussion by comparing these two contrasting market structures.
Basis Perfect Competition Monopoly
No. Of sellers Multiple Single
Entry barriers Extremely low. Extremely high.
Nature and accessibility of There are several really nice No suitable alternatives are
replacement items alternatives available. available.
Features and quality of the
Companies are competing
Merely prices. product, marketing and
via
advertising.
Pricing Negligible. Dependent on supply and Significant. Firms can adjust
strength demand prices as they want.
