Graphical Analysis

Graphical Analysis

Graphical Analysis

Price and output determination on a purely

competitive firm is shown and explained trough

graphical illustrations. Such graphs indicate the

most profitable output and least loss output. The

equilibrium of the firm (through the MR = MC

approach) under the short run and long run are

also presented.

Figure 5.2

Figure 5.3

Figure 5.4

Pure monopoly

There is only one firm that produces the product.

The demand of the product of the firm is the same as

the market demand for the product. Since there is only

one firm, it is also the industry. Its demand curve is the

industry demand curve which is downsloping. This

means a monopolists can only increase his sales by

offering a lower nit price for its product. If he does this,

his marginal revenue (additional income) is lesser than

the price.

Table 5.2

Figure 5.5

Figure 5.6

Monopolistic Competition

The demand curve of a firm under this market

structure is highly elastic (but not perfectly elastic

like that of the firm under the pure competition)

because of the presence of a relatively large number

of competitors selling close-substitute products.

Oligopoly

Under this market structure, there are very few firms which produce homogeneous or differentiated products. Collusion is the common practice among the oligopolists. This is a secret agreement among them to have a common price and to manipulate their output for their own business interest. Thus, their individual profits are the same as those enjoyed by pure monopolists.

e.) Profit maximization of a firm under collusive

oligopoly is basically the same as that of pure

monopolist. Oligopolists agree together with respect

to both price an production in order to gain maximum

profits. A very good example is the OPEC.