Micro: Perfect and Monopolistic Competition

[domyy]

Hello guys,

There is something that I should study but is not on my book.

I am trying to find other explanations online but I can't.

So, it's pretty much to calculate quantity and price for perfect competition and monopolistic competition.

Then, consumer surplus for perfect competition and monopolistic competition.
Then, ∏ (profit) for both,
Then, deadweight loss for both.

Then, I should graph it. Take all the numbers, the information I got, and have them in one graph.

But I am lost. This is one of the examples my prof gave in class. I would like someone to give me, PLEASE, a better and easier explanation.It all starts with P = 12 - 2Q MC = 4

 

[Pyrrhus]

Here's a hint the MC is the supply function.

 

[domyy]

I know that for perfect competition, P = MC
So,
12 - 2q = 4
q = 4
p = 4

For monopolistic competition MR = MC

Now, how to find MR?

 

[domyy]

Never mind. I already know how to solve it. Thanks.

 

[LudusRex]

In perfect competition, there are many buyers and sellers in the market, all producing identical products. This leads to a situation where no single buyer or seller has control over the market price. As a result, the market price is determined by the intersection of the supply and demand curves. In this case, the supply curve is MC (marginal cost) and the demand curve is P = 12 - 2Q.

To calculate the quantity and price in perfect competition, we can set the MC equal to the market price (P) and solve for Q. In this case, Q = 4 and P = 4. This means that in perfect competition, the equilibrium quantity is 4 and the equilibrium price is also 4.

Consumer surplus in perfect competition is the difference between the maximum price a consumer is willing to pay and the actual market price they pay. In this case, the consumer surplus is represented by the area under the demand curve and above the market price (P = 4), which is a triangle with a base of 4 and a height of 4, giving a consumer surplus of 8.

Profit (∏) in perfect competition is zero, as there is no market power for any individual buyer or seller.

Deadweight loss in perfect competition is also zero, as the market is operating at its most efficient level.

In monopolistic competition, there are still many buyers and sellers, but the products are differentiated in some way, such as branding or product features. This leads to some control over the market price for individual sellers. In this case, the demand curve will be downward sloping, with a marginal revenue (MR) curve below it.

To calculate the quantity and price in monopolistic competition, we can use the MR = MC rule, where MR is the marginal revenue and MC is still the marginal cost. In this case, MR = 12 - 4Q and MC = 4. Setting them equal to each other, we get Q = 2 and P = 8. This means that in monopolistic competition, the equilibrium quantity is 2 and the equilibrium price is 8.

Consumer surplus in monopolistic competition is still represented by the area under the demand curve and above the market price (P = 8), but it will be smaller than in perfect competition due to the higher price.

Profit (∏) in monopolistic competition is positive, as individual sellers have some market power and can charge a higher price for their differentiated