4.1 Introduction to Imperfectly Competitive Markets

Market structures run along a spectrum: perfect competition at one end, monopoly at the other, with monopolistic competition and oligopoly in between. Every imperfect competitor shares one defining feature — a downward-sloping demand curve for its own product. To sell more units it must cut price, which makes it a price maker instead of a price taker.

Because a price cut applies to all units sold, marginal revenue is less than price for every unit after the first. For a straight-line demand curve, the MR curve starts at the same intercept and falls twice as fast. Every imperfect competitor still uses the same rule: produce where MR = MC, then charge the price on the demand curve at that quantity.

Barriers to entry decide whether profit survives. Monopoly and oligopoly sit behind high barriers, so economic profit can persist in the long run; monopolistic competition has low barriers, so entry competes profit down to zero.