Competition & Monopoly

In this lesson, we develop two benchmark models of competition. The first is perfect competition, which represents a conceptual model of how markets work under certain extreme, often unrealistic, assumptions such as trade in homogenous goods. Our focus is on understanding the assumptions that generate the perfect competition result and whether those assumptions are realistic for most markets. The second benchmark model is monopoly, which represents the opposite extreme--a market with a single seller. We develop the concept of marginal revenue and the trade-offs monopolists face when making pricing decisions. Finally, we detail how markets should be considered more dynamically rather than statically.