Imperfect Competition Overview — AP Microeconomics
1. Unit at a Glance
This unit builds on your understanding of firm decision-making from earlier units to examine four core types of imperfectly competitive markets. We progress from the most extreme case of monopoly (single seller) to the more common real-world structures of monopolistic competition and oligopoly, ending with how firms use price discrimination to capture additional profit.
A unifying theme across all sub-topics is comparing the efficiency and welfare outcomes of each imperfect market structure to the perfectly competitive benchmark, helping you identify when and how market failure occurs in these settings.
Common Pitfalls
Why: Students often forget the rule holds for all firms regardless of market structure.
Why: Barriers to entry are required for long-run profit, which do not exist in monopolistic competition.
Why: Strategic interactions often lead to prisoner's dilemma outcomes where individual optimization hurts everyone.