Price equals marginal cost and firms earn an economic profit of zero in perfect competition. In a monopoly, the price is set above marginal cost and the firm earns a supernormal profit. Economic efficient happen when firms produce an equilibrium in which the price and quantity of a good in perfect competition whereas monopolist produces an equilibrium at which the price of a good is higher and the lower quantity. Therefore, governments always seek to regulate monopolies by legislation. 2.0 Characteristic of Perfect Competition and Monopoly Sloman and Hinde (2007) point out perfect competition is a market in the condition broad range of firms selling the identical product without any restriction on entry and exit and price taker at the same time.
Different to monopoly, in this there are no barriers to entry. In the short run, unrealistic profit will catch attention to new producers into the market, meaning the normal profits only are made in the long run. As more firms and competition enter the market, the demand curve facing any existing firm moves to the left which would showing that consumers are now choosing the products offered by new or alternative companies. The long run equilibrium may be as shown with normal profits made. The reality is that a stable equilibrium is never reached since new products come and go all of the time, some do better than others.
However, when the monopoly firm is established, the monopolist may spend some money on advertisement to acquaint the consumers about his product. But he will spend on advertisement only once. On the other hand, due to large number of firms and existence of competition among them, expenditure on selling costs is essential under monopolistic competition. 5. The monopolist can charge different prices from different customers for the same product and can adopt the policy of price discrimination.
Suppliers can reduce supplies quality and increase supplies price. There are the bargaining powers of suppliers lead to high levels of threat when: the supplier’s industry dominated by small number of firms (the firms are small choice for purchase, suppliers can more flexibility to charge high price and reduce quality for increase the supplier’s profit), the suppliers sell unique or highly differentiated products (suppliers can operate in almost whole industry by their unique characteristics of products), the suppliers are not threatened by substitutes, the suppliers threaten forward vertical integration, and the firms are not important customers for
Free trade agreement allows the agreeing nations to focus on their comparative advantages and to produce the goods they are comparatively more efficient at making, thus increasing the efficiency and profitability of each country. 4. OBJECTIVE OF FTA Free trade agreements typically concern on import & export terms imposed by both agreeing countries. For instances, Import tax, it is one of the critical tariffs, it can impact the market directly, making the imported goods more expensive. Thus, the existence of FTA is to negotiate with partnering country to lower their import tax.
Restriction or barriers are lesser than monopolistic market. c. Identical or differential products – In this type of market the production is either identical differentiated. d. Government intervention – In oligopolistic market scenario, government plays a big role to ensure businessmen are not allowed to follow illegal ways of influencing rates and
Therefore, whichever company makes the profit, it finally ends up as a profit of the parent firm. 3.Since companies in an oligopolistic market have full control over it, they are capable of deciding prices as per their choice. Though this practice is illegal, it works in favor of these businesses. 4.Dominant market players usually make long-term profits in an oligopolistic environment. This is possible because the market does not allow an old business to increase its share.
The market is dominated by a few firms; firms either sell identical or differentiated products. There are significant barriers to entry, meaning that other firms won’t be able to enter the industry thus firms can make supernormal profit in the long run. The firms react to rival’s change in price and output; therefore they practice non-price competition, such as: • Gaining customer reliability • Price collusion • Additional services and advertisings to appeal
This model states that a country should specialize in producing and exporting products that they can produce more efficiently at a lower opportunity cost. As for the assumptions, the models assume perfect competition in all markets, there are two trading countries, there are two good being produced, and both models represent a general equilibrium model. There are some differences; for example, HO has two factors of production (labor and capital), while Ricardian has one factor (labor). HO assumes that the only difference between the two countries is the endowments of labor and capital, while Ricardian assumes the only difference is the productivity from technological differences. 2.
The GDP or GDP per capita actually helps to identify the market size of the respective sectors. Artige and Nicolini (2005) at least think so regarding market size. In the econometric study, the GDP per capital act the core determinants of the FDI. On the other hand, Jordaan (2004) thinks that, FDI flows becomes smooth where there are possibilities of expanding the market, the purchasing power of the people is relatively high, and return on investment is also high. These factors determine the flows of FDI in the country for the economic benefits of the country.