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Imperfect competition

Imperfect competition, sometimes referred to confusingly as monopolistic competition, is similar to perfect competition but without the perfect knowledge. Firms are of different sizes and there are some barriers to entry. It is a practical market model with many real-world applications.

As a reminder, here is where it falls on the market spectrum:

Diagram showing the spectrum of different microeconomic markets – ranging from perfect competition on the left to pure monopoly on the right. The further right on the scale, the greater the degree of monopoly power exercised by the firm.

Your task

Investigate imperfect competition in the transport and logistics market. Use the graph below to explore imperfect competition, critique it, and compare it with the market that CV1Logistics operates within.

Imperfect competition represented graphically. The x-axis is output/sales and the y-axis is cost/revenue. Marginal revenue and average revenue both show a negative correlation between output and cost, marginal revenue has a steeper gradient than average revenue. Marginal cost curves upward as output/sales increases, transecting marginal revenue at a point labelled Q2. At this quantity of output (Q2), average revenue is equal to average cost. Both average cost and average revenue decrease as output increases, then after a while average cost rises again while average revenue continues to decrease. The relationships between average revenue, average cost, marginal revenue and marginal cost represent the long-run equilibrium position for a firm in imperfect competition.

Select image to expand.

Key to abbreviations:
AC – Average cost
AR1 – Average revenue
MC – Marginal cost
MR1 – Marginal revenue
Q2 – Quantity

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This article is from the free online course:

What is Economics in Global Logistics?

Coventry University