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If we compare the perfect competition market with other types of market structure, such as monopoly, monopolistic competition, and oligopoly, it will be obvious that the perfect competition is ideal mainly due to the presence of productive and allocative efficiency.In perfect competition, there are a large number of small firms producing homogenous products, in other words, products produced by one firm is identical to the products produced by other firms in the market.There are also a large number of buyers within the market where they have The monopolist then identifies the price that will clear the market for the level of output- in Figure 7 this is PM.
The demand curve is equal to the marginal revenue curve meaning that the firm sells whatever it produces and there is no inventory tax.
Having MR=MC, the firm makes as much profit as possible.
Each firm competes with the others by making its product slightly different, and allows the firms to build up brand loyalty among their customers.
Therefore, demand will be relatively price-elastic. Firms are able to join the market if they observe that existing firms are making super-normal profits.
There can never be a market close to having perfect conditions for competition.
It is true that many markets, such as the ones for raw materials come close to being in perfect competition, they can never truly achieve perfect competition.Most scholars argue that this kind of market model does not exist in real world.This might be due to information gap among consumers, some suppliers coalescing to have some control over the market price or inability to find companies offering identical products in the market.Among these companies are: 76 Lubricants, A Plus Auto Oil Change Etc, Bahamas Miracle Crude Oil, Bulk Cooking Oil Solutions, LLC, Capital Oil & Gas, Genpass Technologies, Longrun Oil Corp, Mr Oil and Oil Lube Express of W Melbourne.Most of these companies do have their own filling stations though they also make distributions of oil to other filling stations they do not own. The high number of the marketers and distributors of this product indicate that no single company can have control over oil prices.Allocative efficiency is also not achieved, as price will always be set above marginal cost.Monopolistic competition is a market in which there are may firms producing similar, but not identical, products, e.g. Firms produce differentiated products, and face downward-sloping demand curves.The concentration ratio in the industry tends to be relatively low as there are many firms operating in the market.Figure 8 represents short-run equilibrium under monopolistic competition.There are different kinds of market structures in this economy.Perfect competition, as one of them, is often described as the ideal market structure, and only treated as a theoretical ideal.