Cheat Sheet: From Perfect Competition to Monopoly

1.

Cheat Sheet: From Perfect Competition to Monopoly
1. Perfect Competition
Conditions:
- Many sellers and buyers
- Homogeneous product
- Free entry and exit
- Perfect information
- Price taker (P = market price)
Formulas:
1. Total Revenue: TR = P * Q
2. Average Revenue: AR = TR / Q = P
3. Marginal Revenue: MR = DeltaTR / DeltaQ = P
4. Profit Maximization: MR = MC
5. Profit: pi = TR - TC
6. Break-even Point: P = ATC
7. Shutdown Point: P < AVC -> stop production
2. Monopoly
Conditions:
- One seller
- No close substitutes
- High barriers to entry
- Price maker
Formulas:
1. Demand: Q = D(P) <-> P = P(Q)
2. Total Revenue: TR(Q) = P(Q) * Q
3. Marginal Revenue: MR(Q) = dTR / dQ
4. Linear Demand MR: MR = a - 2bQ (if P = a - bQ)
5. Profit Maximization: MR = MC

2.

6. Lerner Index: L = (P - MC) / P = -1 / Ed
7. Profit: pi = TR - TC
3. Comparison of Key Results
| Indicator
| Perfect Competition | Monopoly
|
|-------------------|---------------------|---------------------|
| Price
| P = MC
| P > MC
|
| Marginal Revenue | MR = P
| MR < P
| Optimum Condition | P = MC
| MR = MC
| Long-run Profit | pi = 0
| pi > 0 if barriers |
|
|