What are the four market models that economists employ, and what are the major c

Question

What are the four market models that economists employ, and what are the major characteristics of each type of market? What are the similarities among the four market models? Compare and contrast the TR -TC approach with the MR-MC approach to profit maximization. Are the two approaches consistent? Explain the MR = MC rule to its three characteristics. Why is a firm willing to produce at a loss in the SR if the loss is no greater that the fixed cost of the firm? What are the important distinctions between the short run and the long run and between equilibrium in the short and long runs in a purely competitive industry? What is a constant- cost industry? Explain the conditions for and productive efficiency. Explain the barrier to entry. Why are most natural monopolies also public utilities? What does government hope to achieve by granting exclusive franchises to and regulating such natural monopolies? Explain why marginal revenue is always less than AR (price)when demand is less than perfectly elastic (monopoly). Suppose a pure monopolist discovered it was producing and selling an output at which the demand for its product was inelastic Explain why a decrease in its output would increase its economic profits. How does the profit-maximizing monopolists determine what output to produce? What price will it charge? Why is there no supply curve for a monopoly? Why do the monopolists not charge the highest possible price for its product? In what sense is resource allocation and production more efficient under conditions of pure competition than under monopoly conditions? What is meant by price discrimination? Define it. What conditions must be realized before it is workable? How does price discrimination affects profits and the output of the monopolists? How does it affect consumers? What is meant by product differentiation? By what methods can products be differentiated?

Explanation / Answer

The four types of market models are:

1. Perfect Competition - Unlimited number of producers, Free entry and exit to market, Identical good sold, Same price

2. Monopoly- Single seller, Good may be homogenous, Price discrimination, No free entry to market

3. Monopolistic competition- has elements of monopoly and perfect competition. Many sellers, homogenous goods, price discrimination, free entry and exit

4. Oligopoly- few firms, may join together to produce as monopolist

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