What are the short term pricing differences in the different market structures?

The two main market structures are perfect competition and monopolistic competition.In perfect competition, there are a lot of different firms all selling the same product. As a result, no firm has the opportunity to make money by overcharging their consumers, as if they did so consumers would simply move to the cheaper alternatives. Thus, in perfect competition price is equal to marginal cost as firms still need to cover their costs to stay in business. On the other side you have monopolistic competition. Here there is only one firm offering the good to consumers and so the firm has the opportunity to rise their prices further than marginal costs and can also make a profit. This profit that they make is called supernormal profit. We can find the cost set by a monopoly using a diagram and equating marginal cost to marginal revenue.

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Answered by Rae S. Economics tutor

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