Perfect competition exists when there are many producers and many consumers of a homogenous product.
For a perfectly competitive firm, marginal revenue is equal to price. A perfectly competitive firm produces where price equals marginal cost. A perfectly competitive firm breaks even in the long run.
A monopoly occurs when one firm controls the market.
Other things being constant, the most efficient allocation of resources occurs when a firm produces at the level of output where price (measuring marginal benefits to buyers) is equal to marginal cost.
In the long run, a perfectly competitive firm produces at an output where price equals marginal cost and also produces where average total cost reaches its lowest point (vertex). A perfectly competitive firm is allocatively and productively efficient in the long run.
Allocatively efficient means the perfectly competitive firm operates at the point where P = MC. Productive efficiency means the perfectly competitive firm operates at the point where P=MC=minimum ATC in the long run.
For a monopoly firm or any firm under imperfect competition, marginal revenue is less than price.
A monopoly firm maximizes profits by producing at the quantity where marginal revenue = marginal cost and by setting price according to the demand curve at that quantity.
A monopoly can make economic profits in the long run. However, a long-run economic profit is not guaranteed.
In the long run, a monopoly firm charges a higher price and produces at a lower output than a perfectly competitive firm with the same cost curves.
A monopoly firm will operate where price is greater than marginal cost, causing a misallocation of resources.
Oligopoly occurs when a few firms control the market.
Monopolistic competition is close to pure or perfect competition except that there is product differentiation.
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