🔎 Market Structure Comparison

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Overview

	Perfect Competition	Monopolistic Competition	Monopoly	Oligopoly (I added this column)
Number of Firms	Very many	Many	One	Few
Output of Different Firms	Identical	Differentiated	---	Identical or Differentiated
View of Pricing	Price taker	Price maker	Price maker	Depends
Barriers to Entry/Exit	No	No	Yes	Yes
Output and Pricing	$MR = MC = P$ $q^\ast$ at min AC	$MR = MC$ $P \gt MC$ $q^\ast$ below min AC	$MR = MC$ $P \gt MC$ $q^\ast$ below min AC	Use Game Theory
SR Profit	Positive, zero, or negative	Positive, zero, or negative	Positive, zero, or negative	Positive, zero, or negative
LR Profit	Zero	Zero	Positive or Zero	Positive or Zero
Advertising	Never	Always	Sometimes (PR Type)	Depends

In perfect competition, monopoly, and monopolistic comp, you can do $MR = MC$ to find the optimal quantity ($q^*$). In perfect competition, $P = MR$, so we can also do $P = MC$. However, we can’t do this in monopolistic comp or in monopoly, because in those market structures, $P > MR$. Of course, for discrete goods, we produce highest q, where $MR \geq MC$.

Perfect Competition
$D = P = MR = MC$

Monopoly and Monopolistic Comp
$D = P > MR = MC$

Perfect Competition

How to “solve” a perfect competition problem:
1.) $P = MC$ to figure out $q^*$
2.) Do you shut down ($P < AVC$) or, in LR, exit ($P < ATC$)
3.) Wrap up

Perfect Competition, Long Run

Monopoly

How to “solve” a Monopoly problem
1.) $MR = MC$ to figure out Q
2.) Draw a line up to the demand curve to figure out P
3.) Wrap up. $\text{Profit} = TR - TC = q^*(P - AC)$

Monopoly, Short Run and Long Run (with profits)

Monopolistic Competition

How to “solve” a monopolistic competition problem:
Solve Monopolistic Competition just like Monopoly, except that in the long run, the demand curve shifts until it is tangent to AC and $P = AC$.

Monopolistic Competition, Long Run

The following diagrams show long run equilibria in Monopolistic Competition and Perfect Competition.

Oligopoly

There’s no single diagram. Because of strategic interdependence, we use different game theoretic models to illustrate different oligopolistic scenarios.