Economics: IMPORTANT OBSERVATIONS UNDER IMPERFECT MARKETS ( MONOPOLY & MONOPOLISTIC COMPETITION

IMPORTANT OBSERVATIONS UNDER IMPERFECT MARKETS ( MONOPOLY & MONOPOLISTIC COMPETITION)⚜️

The monopoly and monopolistic competition market structures don’t have perfectly elastic demand curves (AR Curves). These two market structures both have downward-sloping demand curves. Nevertheless, the demand curve for the Monopoly is downward-sloping but relatively inelastic whereas the demand curve for the monopolistic competition is downward-sloping but relatively elastic.

Under Monopoly and Monopolistic competition, the AR and MR curves are not equal. MR ( price ) is less than AR ( Demand ).

– AR serves as Demand and also serves as Price

In order to properly identify the profit that a firm makes pay attention to what is happening between AR & AC

• In diagram A the firm is making Economic/Abnormal/Supernomal profit because AC cuts AR and this makes AC < AR. In Zulu, we can say AC uyakebha ku AR which makes the firm make Abnormal profit.

• In diagram B the firm is making Normal Profit/Economic Profit Of Zero because AC only touches ( it doesn’t cut ) AR and this makes AC = AR. In Zulu we can say AC uyathinta ku AR which makes the firm make a Normal profit.

• In diagram C the firm is making an Economic loss because AC doesn’t touch and cut AR and this makes AC > AR. In Zulu we can say AC akathinti nhlobo/Uqhelile ku AR which makes the firm make Economic Loss.

ECONOMICS P1 NSC FINAL EXAM SCOPE IS OUT ON 28 OCTOBER 2022 @23:40 FRIDAY