Question

Discuss the following as it relates to profit maximaztion:
1) pure competition
2) monopolistic competition
3) oligopoly

Answer 1

1) In order to maximize profits in perfect competition, firms get to set marginal revenue which is equal to marginal cost. Here when price is greater than the average total cost, the firm is actually making a profit.

2) The monopolistic profit maximisation is nothing but the level of output and is indeed found by equating its marginal revenue with its marginal cost, which is the same profit maximizing condition that a perfectly competitive firm that indeed a firm uses to determine its equilibrium level of output on the whole.

3) There is a tendency of oligopoly to thwart competition and they can get to restrict output to maximum profits where they produce upto when the marginal cost equals marginal revenue and this revels that they exhibit same inefficiencies as in monopoly.