Microeconomics shows conditions under which free markets lead to desirable allocations. However, an alternative way to develop microeconomic theory is by taking consumer choice as the primitive. This implies that there are many buyers and sellers in microeconomics pindyck pdf free download market and none of them have the capacity to significantly influence prices of goods and services.
In many real-life transactions, the assumption fails because some individual buyers or sellers have the ability to influence prices. Quite often, a sophisticated analysis is required to understand the demand-supply equation of a good model. However, the theory works well in situations meeting these assumptions. It is a tool for measuring the responsiveness of a variable, or of the function that determines it, to changes in causative variables in unitless ways. They see every commercial activity other than the final purchase as some form of production.
Benefits of Perfect Competition- All the knowledge such as price and information pertaining goods is equally dispersed among all buyers and sellers. As there are no barriers to enter into the market, monopoly does not usually occur. As all goods and products are same, advertisement is not required and it helps save the advertisement cost. In perfect competition products are identical. Benefits of Monopoly Market- Prices in monopoly market are stable as there is only one firm and so there is no competition.
Due to the absence of competition there are high profits and leads to high number of sales monopoly firms tend to receive super profits from their operations. As there is less competition in the firm, it tends to have massive profit. It is also able to easily compare prices forces these companies to keep their prices in competition with the other companies involved in the market. Each company scrambles to come out with latest and greatest thing in order to sway consumers to go with their company over a different one. Competition is the regulatory mechanism of the market system. Oligopoly, in which a market is run by a small number of firms that together control the majority of the market share. Duopoly, a special case of an oligopoly, with only two firms.