Between

Competition &
Monopoly
Group 10
 Introduction
The number and types of firms operating in
an industry and the nature and degree of
competition in the market for the goods and
services is known as Market Structure. To
study and analyze the nature of different
forms of market and issues faced by them
while buying and selling goods and services,
economists have classified the market in
different ways. The different forms of market
structure are Perfect Competition and
Imperfect Competition (Monopoly,
Monopolistic Competition, and Oligopoly). Gonzales, Michelle
● Market structure refers to the organization of industries
and the level of competition within them.

● Economists classify markets into Perfect Competition,

Monopoly, Monopolistic Competition, and Oligopoly.

Gonzales, Michelle
Balaza , Abegail
 Balaza , Abegail

Monopoly: One firm, unique product,

high barriers to entry, inelastic demand.
Example: A company with a patent on
a unique drug.

Monopolistic Competition: Many firms,

differentiated products, relatively easy
entry/exit, more elastic demand.
Example: Restaurants.
 Balaza , Abegail
What is Perfect
Competition?
A market situation where a large number of buyers and sellers deal in a
homogeneous product at a fixed price set by the market is known as
Perfect Competition. Homogeneous goods are goods of similar shape,
size, quality, etc. In other words, in a perfectly competitive market, the
sellers sell homogeneous products at a fixed price determined by the
industry and not by a single firm. In the real world, the situation of perfect
competition does not exist; however, the closest example of a perfect
competition market is agricultural goods sold by farmers. Goods like
wheat, sugarcane, etc., are homogeneous in nature and their price is
influenced by the market
 Balaza , Abegail

Perfect Competition: Many

firms, identical products,
free entry/exit, perfectly
elastic demand (theoretical
ideal). Example: Agricultural
markets (approximately).
Ramos, Kristine Pacienciosa

Features of Perfect Competition Market

● Large Number of Buyers and Sellers: There are so many
buyers and sellers in the market that no single buyer or seller
can influence the market price. Each participant is a price taker.
● Homogeneous Products: The products offered by different
sellers are identical or perfectly substitutable. Buyers have no
preference for one seller’s product over another’s.
● Free Entry and Exit: Firms can freely enter or exit the market
without any significant barriers. This ensures that firms can
respond to changes in market conditions by adjusting their level
of production.
Ramos, Kristine Pacienciosa

Features of Perfect Competition Market

● Perfect Information: All participants have complete and perfect
information about prices, product quality, and other relevant factors.
This allows them to make informed decisions.
● No Price Control: Firms cannot influence the market price; the price is
determined by the forces of supply and demand. Individual firms
accept the market price as given.
● Profit Maximization: Firms aim to maximize their profits by adjusting
their output levels based on the marginal cost of production and the
market price.
● No Externalities: There are no external costs or benefits that affect
third parties outside the market. All costs and benefits are reflected in
the market price.
Ramos, Kristine Pacienciosa
Perfect competition ensures a fair and efficient market where
businesses and consumers can make informed decisions.

They taste the same, so people choose the cheapest option.

 Price and Output Determination in
Monopolistic Competition
● Firms face a downward-sloping demand
curve, meaning they can influence prices but
not completely control them.

● Short-Run Profit: If a firm earns above-normal

profit, new firms enter the market, increasing
competition and lowering prices.

● Long-Run Equilibrium: Profit will eventually

decrease to zero because of increased
competition.
Ramos, Kristine Pacienciosa
 In monopolistic competition, even if the products are
similar, there are differences in taste, branding, or quality.
Because of this, businesses have some control over the
price.

all offer wintermelon milk tea, but each has a unique mix and toppings.
Even though they all sell milk tea, people have their preferred brand.

Ramos, Kristine Pacienciosa

 What is Monopoly? Gonzales, Michelle

Monopoly is a completely opposite

form of market and is derived from two
Greek words, Monos (meaning single)
and Polus (meaning seller). A market
situation where there is only one seller
in the market selling a product with
no close substitutes is known as
Monopoly.

For example, Meralco—there’s only one

provider of electricity in many areas, so
you have no choice.
Features of Monopoly
Market
● Single Seller: There is only one firm that supplies the entire market. This
firm is the sole producer of the good or service.
● No Close Substitutes: The product offered by the monopoly has no
close substitutes. Consumers have no alternative products to switch to,
which gives the monopolist significant market power.
● High Barriers to Entry: Significant barriers prevent new firms from
entering the market. These barriers can be legal (patents, licenses),
technological (high startup costs, unique technology), or
resource-based (control over a key resource).
● Price Maker: The monopolist has substantial control over the price of
the product. Unlike in perfect competition, the monopoly can influence
the market price by adjusting the level of output.
Gonzales, Michelle
Features of Monopoly
Market
● Profit Maximization: The monopolist maximizes profits by setting a
price where marginal revenue equals marginal cost (MR = MC). This
often results in higher prices and lower output compared to competitive
markets.
● Price Discrimination: The monopolist may practice price discrimination,
charging different prices to different consumers based on their
willingness to pay. This can lead to increased profits.
● Lack of Economic Efficiency: Monopoly markets are often less efficient
than competitive markets. They can lead to allocative inefficiency
(where resources are not used in the most valued way) and productive
inefficiency (where goods are not produced at the lowest possible cost).

Gonzales, Michelle
Example: It's like the MRT—there’s no other train
system you can ride along EDSA, so even if there’s a
long line, you have no other choice.

Gonzales, Michelle
Perfect Competition and Monopoly –
FAQs
What is Perfect Competition?
● Perfect Competition is a market structure
characterized by a large number of small
firms, homogeneous products, free entry
and exit, perfect information, and no
control over prices by individual firms.

Example: The street food market, like fishball

vendors. Multiple vendors sell the same product
(fishballs), and they all offer similar prices
because none can control the price.

Gonzales, Michelle
How are prices determined in a perfectly
competitive market?
● Prices are determined by the forces of supply and
demand. Individual firms accept the market price
as given.

Example: If there's a high demand for rice but low

supply, the price will increase. However, if the market is
flooded with rice, the price will drop. Each farmer
selling rice has to accept the market price.

Gonzales, Michelle
What happens to profits in the long run in
perfect competition?
● In the long run, firms earn only normal
profits (zero economic profit). Any
economic profits attract new firms,
increasing supply and driving prices down
until only normal profits remain.

Example: If a new coffee shop opens and

makes a lot of money, other coffee shops will
open nearby, increasing supply. Eventually, the
price will decrease, and profits will return to
normal levels.

Gonzales, Michelle
Why is perfect competition considered
efficient?
● Perfect competition leads to allocative and
productive efficiency. Resources are
allocated to their most valued uses, and
goods are produced at the lowest possible
cost.

Example: In a perfect competition setting,

farmers grow the most popular crops like rice,
corn, or vegetables, maximizing land use
efficiency. Additionally, the farmers produce at
the lowest cost since they have to keep prices
competitive.

Gonzales, Michelle
What is a monopoly?
● A monopoly is a market structure where a single
firm is the sole producer and supplier of a
product or service with no close substitutes,
allowing significant control over prices.

Example: Meralco, which is the only electricity provider

in certain areas, has full control over electricity prices
in its service area.

Gonzales, Michelle
How does a monopolist set prices?
● A monopolist sets prices by
choosing the output level where
marginal revenue equals marginal
cost (MR = MC). This typically
results in higher prices and lower
output than in competitive
markets.

Example: A monopolist, like a water

supply company in an isolated area,
can charge higher rates for water
because it is the only provider, and
consumers have no alternative.
Gonzales, Michelle
What are barriers to entry in a
monopoly market?
● Barriers to entry can include legal
restrictions (patents, licenses), high
startup costs, control over key
resources, and technological
advantages.

Example: In the pharmaceutical industry,

companies with patents on life-saving
drugs create high barriers to entry for
other companies that would like to sell the
same drug.
Gonzales, Michelle
What is price discrimination in a
monopoly?
● Price discrimination occurs when a
monopolist charges different prices
to different consumers for the
same product based on their
willingness to pay, thereby
increasing profits.

Example: Airlines charging higher prices

for last-minute flights compared to
tickets booked in advance is a form of
price discrimination. Customers who are
willing to pay more for a last-minute
ticket will do so, increasing the airline’s
profits. Gonzales, Michelle
Are monopolies efficient?
● Monopolies are generally less efficient
than competitive markets. They can lead
to allocative inefficiency (misallocation of
resources) and productive inefficiency
(higher production costs).

Example: A state-run train service that has no

competition may charge high prices and
provide poor service because there is no other
company to improve efficiency and customer
satisfaction.

Gonzales, Michelle
 Second Semester SY 2024-2025

Group 10

Leader: Gonzales, Michelle

Ramos, Kristine Pacienciosa
Pacanza , Mae
Flores, Khrystelle Shaine
Balaza , Abegail