11 SENIOR HIGH SCHOOL

APPLIED
ECONOMICS
Quarter 3 – Module 5
Market Structures in Terms of Sellers,
Products, Pricing Power and Others

NegOr_Q3_AppliedEconomics11_Module5_v2
NegOr_Q3_AppliedEconomics11_Module5_v2
Applied Economics – Grade 11
Alternative Delivery Mode
Quarter 3 – Module 5: Various Market Structures in Terms of Sellers, Products,
Entry/Exit to Market, Pricing Power and Others
Second Edition, 2021

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NegOr_Q3_AppliedEconomics11_Module5_v2
Introductory Message

This Self-Learning Module (SLM) is prepared so that you,

our dear learners, can continue your studies and learn while at
home. Activities, questions, directions, exercises, and
discussions are carefully stated for you to understand each
lesson.
Each SLM is composed of different parts. Each part shall
guide you step-by-step as you discover and understand the
lesson prepared for you.
Pre-tests are provided to measure your prior knowledge on
lessons in each SLM. This will tell you if you need to proceed on
completing this module or if you need to ask your facilitator or
your teacher’s assistance for better understanding of the lesson.
At the end of each module, you need to answer the post-test to
self-check you’re learning. Answer keys are provided for each
activity and test. We trust that you will be honest in using these.
In addition to the material in the main text, Notes to the
Teacher are also provided to our facilitators and parents for
strategies and reminders on how they can best help you on your
home-based learning.
Please use this module with care. Do not put unnecessary
marks on any part of this SLM. Use a separate sheet of paper in
answering the exercises and tests. And read the instructions
carefully before performing each task.
If you have any questions in using this SLM or any difficulty
in answering the tasks in this module, do not hesitate to consult
your teacher or facilitator.
Thank you.

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 I

This module was designed to provide you with fun and meaningful opportunities for
guided and independent learning at our own pace and time. You will be enabled to process
the contents of the learning resource while being an active learner.

The module is intended for you to differentiate the various market structures in terms
of number of sellers, types of products, entry/exit to market, pricing power and others.

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 I

Pre-assessment:
Directions: Identify what is asked in each item. Write the letter of the correct answer in your
notebook.
1. Which of the following is not a type of market structure? 1
A. Competitive monopoly
B. Oligopoly
C. Perfect competition
D. All of the above are types of market structures.
2. If the market demand curve for a commodity has a negative slope, then the market
structure must be
A. perfect competition.
B. monopoly.
C. imperfect competition.
D. The market structure cannot be determined from the information given.
3. If a firm sells its output on a market that is characterized by many sellers and buyers, a
homogeneous product, unlimited long-run resource mobility, and perfect knowledge, then the
firm is a:
A. a monopolist.
B. an oligopolist.
C. a perfect competitor.
D. a monopolistic competitor.
4. If a firm sells its output on a market that is characterized by a single seller and many
buyers of a homogeneous product for which there are no close substitutes and barriers to
long-run resource mobility, then the firm is
A. a monopolist.
B. an oligopolist.
C. a perfect competitor.
D. a monopolistic competitor.
5. If a firm sells its output on a market that is characterized by many sellers and buyers, a
differentiated product, and unlimited long-run resource mobility, then the firm is
A. a monopolist.
B. an oligopolist.
C. a perfect competitor.
D. a monopolistic competitor.

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6. If a firm sells its output on a market that is characterized by few sellers and many buyers
and limited long-run resource mobility, then the firm is
A. a monopolist.
B. an oligopolist.
C. a perfect competitor.
D. a monopolistic competitor.
7. If one perfectly competitive firm increases its level of output, market supply
A. will increase and market price will fall.
B. will increase and market price will rise.
C. and market price will both remain constant.
D. will decrease and market price will rise.
8. Which of the following markets comes close to satisfying the assumptions of a perfectly
competitive market structure?
A. The stock market.
B. The market for agricultural commodities such as wheat or corn.
C. The market for petroleum and natural gas.
D. All of the above come close to satisfying the assumptions of perfect competition.
9. A perfectly competitive firm should reduce output or shut down in the short run if market
price is equal to marginal cost and price is
A. greater than average total cost.
B. less than average total cost.
C. greater than average variable cost.
D. less than average variable cost.

’s In

At this point, you already know something about competitive markets and the factors
that drive markets to work- the decisions of buyers (demand) and of sellers (supply)-
resulting in trade. But there are other types of markets besides competitive markets. Market
structure describes the important features of a market, including the number of buyers and
sellers, the product’s uniformity across suppliers, the ease of entry into the market, and the
forms of competition among firms. To get a better feel for the economy, you need to learn
more about the different types of market structures.

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 ’s New

Task 1

Think Critically: Analyze the Flower Auction Holland’s Market structure in the competitive
Market

Five days a week in a huge building 10 miles outside of Amsterdam, some 2,000
buyers gather to participate in Flower Auction Holland. At this auction, more than 19 million
flowers and 2 million plants from 5,000 growers around the globe are auctioned off each day.
The auction is held in the world’s largest commercial building, and it is spread across the
equivalent of 100 football fields. Flowers are grouped and auctioned off by type--- long-
stemmed roses, tulips, and so on. Hundreds of buyers sit in the theatre settings with their
fingers on buttons. Once the flowers are presented, a clocklike instrument starts ticking off
descending prices until a buyer stops it by pushing a button. The winning bidder gets to
choose how many and which items to take. The clock starts again until another buyer stops it,
and so on, until all flowers are sold. Buyers also can bid from remote locations. Flower
auctions occur swiftly—on average one transaction occurs every four seconds. This is an
example of a Dutch auction, which stars at a high price and works down. Dutch auctions are
common where multiple lots of similar, though not identical, items are sold, such as flowers
in Amsterdam, tobacco in Canada, and fish in seaports around the world (McEachern, et al.,
2017).

Question:

1. Is Flower Auction Holland a perfect example of a perfectly competitive market? Why

or why not?

is It

Types of Market Structures

Market structures have elements that are organized, and oftentimes institutionally
regulated; such as system impacts pricing and distribution. The term market structure
describes the important characteristics, or features, of a market.

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Perfect Competition

The first market structure to consider is perfect competition. Perfectly competitive markets
are assumed to have the following features:
1. There are many buyers and sellers- so many that each buys or sells only a tiny fraction
of the total market output. This assumption ensures that no individual buyer or seller
can influence the price.
2. Firms produce a standardized product, or a commodity. A commodity is a product
that is identical across suppliers, such as a sack of wheat, a sack of corn, or a share of
company stock. Because all suppliers offer an identical product, no buyer is willing to
pay more for one particular suppliers’ product.
3. Buyers are fully informed about the price, quality, and availability of products, and
sellers are fully informed about the availability of all resources and technology.
4. Firm can easily enter or leave the industry. There are no obstacles preventing new
firms from entering profitable markets or preventing existing firms from leaving
unprofitable markets.

Table 1. Market structure describes the important characteristics of a market.

Market Feature Questions to Ask
1. Number of buyers and sellers Are there many, only a few or just one?
2. Product’s uniformity across suppliers Do firms in the market supply identical
products or are products differentiated across
firms?
3. Ease of entry into the market Can new firms enter easily or do natural or
artificial barriers block them?
4. Forms of competition among firms Do firms compete based only on prices, or
are advertising and product differences are
also important?

If these conditions exist in a market, individual buyers and sellers have no control
over the price. Price is determined by market demand and market supply. Once the market
establishes the price, each firm is free to supply whatever quantity maximizes its profit or
minimizes its loss. A perfectly competitive firm is so small relative to the size of the
market that the firm’s quantity decision has no effect on the market price. Any profit in
this market attracts new firms in the long run, which increases the market supply. This
reduces the market price. The lower price drives down the profit in this market.

Examples of Perfectly Competitive Markets

Examples of perfect competition includes markets for the shares of large corporations
such telecommunication, food and beverages; markets for foreign exchange, such as Yen,
Euros, and Pounds; and markets for most agricultural products, such as livestock, corn, and
wheat. In these markets, there are so many buyers and sellers that the actions of any one
cannot influence the market price.
In the perfectly competitive market for coconuts, for example, an individual supplier
is a coconut farm. In the world market for coconuts, there are tens of thousands of coconut
farms, so any one supplies just a tiny fraction of market output. For example, the Philippine

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exports more than $1 billion worth of coconut products to the United States, But no single
coconut farmer can influence the market price of coconuts. Any farmer is free to supply any
amount he or she wants to supply at the market price.

What are the features of perfect competition

A perfectly competitive market has the following characteristics:
• There are many buyers and sellers in the market.
• Each company makes a similar product.
• Buyers and sellers have access to perfect information about price.
• There are no transaction costs.
• There are no barriers to entry into or exit from the market.

Monopoly
The monopoly market structure is the opposite of the perfect competition structure . A
monopoly is the sole supplier of a product with no close substitutes. The term monopoly
comes from a Greek word meaning “one seller.” A monopolist has more market power than
does a business in another market structure. Market power is the ability of a firm to raise its
price without losing all its sales to rivals. A perfect competition has no market power.

Barriers to Entry
A monopolized market has high barriers to entry, which are restrictions on the entry
of new firms into an industry. Barriers to entry allow a monopolist to charge a price above the
competitive price. If other firms could easily enter the market, they would increase the market
supply and thereby drive the price down to the competitive level. There are three types of
entry barriers: legal restrictions, economies of scale, and control of an essential resource.

Legal Restrictions
Governments can prevent new firms from entering a market by making entry illegal.
Patents, licenses, and other legal restrictions imposed by the government provide some
producers with legal protection against competition.

Governments in some cities confer monopoly rights to collect garbage, offer bus and
taxi service and supply other services ranging from electricity to cable TV. The government
itself may become a monopolist by supplying the product and outlawing competition. For
example, the Philippine Postal Corporation has the exclusive right to deliver first-class mail.

Economies of Scale
A monopoly sometimes emerges naturally when a firm experiences substantial
economy of scale. A single firm can sometimes satisfy market demand at a lower average
cost per unit than could two or more small firms. Put another way, market demand is not
great enough to allow more than one firm to achieve sufficient economies of scale.

Thus, a single firm emerges from the competitive process as the sole supplier in the
market. For example, the transmission of electricity involves economies of scale. Once wires
are run throughout a community, the cost of linking additional households to the power grid

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is relatively small. The cost per household declines as more and more households are wired
into the system.

A monopoly that emerges due to the nature of costs is called a natural monopoly. A
new entrant cannot sell enough output to experience the economies of scale enjoyed by an
established natural monopolist. Therefore, entry into the market is naturally blocked.

In less-populated areas, natural monopolies include the only grocery store, movie
theatre, or restaurant for miles around. These are geographic monopolies for products sold in
local markets.

Control of Essential Resources Sometimes the source of monopoly power is a firm’s

control over some resources critical to production. Following are some examples of the
control of essential resources barrier to entry.
• Diamond mining has control of 80 percent of the world’s diamond supply and has the
ability to limit supply to keep prices high.
• China is a monopoly supplier of pandas to the world’s zoos. The National Zoo in
Washington, D.C., for example, rent a pair of pandas from China for $1 million per
year. As a way of controlling the panda supply, China stipulates that any offspring
from the Washington pair becomes China’s property. Other zoos have similar deals
with China.
• The privately owned National Grid Corporation of the Philippines (NGCP) is
exclusively in charge of operating, maintaining, and developing the Philippines
interconnected power-grid system that transmits electricity from its source to its end
users.

Monopolistic Competition and Oligopoly

Since we are done with market structures - perfect competition and monopoly, next
you will learn about monopolistic competition and oligopoly. The two structures between the
extremes in which most firms operate. Firms in monopolistic competition are like golfers in a
tournament in which each player strives for a personal best. Firms in oligopoly are more like
players in a tennis match, where each player’s actions depend on how and where the
opponent hits the ball.

Monopolistic Competition

Monopolistic competition is a type of market structure where many companies are

present in an industry, and they produce similar but differentiated products. None of the
companies enjoy a monopoly, and each company operates independently without regard to
the actions of other companies. The market structure is a form of imperfect competition
(Corporate Financial Institute, n.d.).

The characteristics of monopolistic competition include the following:

• The presence of many companies
• Each company produces similar but differentiated products
• Companies are not price takers

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 • Free entry and exit in the industry
• Companies compete based on price, product quality, and how the product is marketed

Companies in a monopolistic competition make economic profits in the short run, but
in the long run, they make zero economic profit. The latter is also a result of the freedom of
entry and exit in the industry. Economic profits that exist in the short run attract new entries,
which eventually lead to increased competition, lower prices, and high output.

Such a scenario inevitably eliminates economic profit and gradually leads to

economic losses in the short run. The freedom to exit due to continued economic losses leads
to an increase in prices and profits, which eliminates economic losses.

In addition, companies in a monopolistic market structure are productively and

allocatively inefficient as they operate with existing excess capacity. Because of the large
number of companies, each player keeps a small market share and is unable to influence the
product price. Therefore, collusion between companies is impossible.

In addition, monopolistic competition thrives on innovation and variety. Companies

must continuously invest in product development and advertising and increase the variety of
their products to appeal to their target markets. Competition with other companies is thus
based on quality, price, and marketing.

Quality entails product design and service. Companies able to increase the quality of
their products are, therefore, able to charge a higher price and vice versa. Marketing refers to
different types of advertising and packaging that can be used on the product to increase
awareness and appeal.

Monopolistic Competition vs. Perfect Competition

Companies in monopolistic competition produce differentiated products and compete
mainly on non-price competition. The demand curves in individual companies for
monopolistic competition are downward sloping, whereas perfect competition demonstrates a
perfectly elastic demand schedule.

However, there are two other principal differences worth mentioning – excess
capacity and mark up. Companies in monopolistic competition operate with excess capacity,
as they do not produce at an efficient scale, i.e., at the lowest ATC. Production at the lowest
possible cost is only completed by companies in perfect competition.

Mark-up is the difference between price and marginal cost. There is no mark-up in a
perfect competition structure because the price is equal to marginal cost. However,
monopolistic competition comes with a product mark-up, as the price is always greater than
the marginal cost.

What is an Oligopolistic Market or Oligopoly?

The primary idea behind an oligopolistic market (an oligopoly) is that a few
companies rule over many in a particular market or industry, offering similar goods and

9 NegOr_Q3_AppliedEconomics11_Module5_v2
services. Because of a limited number of players in an oligopolistic market, competition is
limited, allowing every firm to operate successfully. The situation typically breeds
regular partnerships between firms and fosters a spirit of cooperation.

An oligopoly is a term used to explain the structure of a specific market, industry, or

company. A market is deemed oligopolistic or extremely concentrated when it is shared
between a few common companies. The firms comprise an oligopolistic market, making it
possible for already-existing smaller businesses to operate in the market dominated by a few.

For example, major airlines like American Airlines and United Airlines dominate the
flight industry; however, smaller airlines also operate within the space, offering special
flights in the holiday niche or offering unique services as Southwest does, providing special
guest singers and entertainment on certain flights.

Breaking Down Oligopolistic Markets and Firms

When thinking about oligopolistic companies, it’s important to note that these are the
firms that rule in an oligopolistic market. The businesses are generally the trend and price
setters, seeking out and forming partnerships and deals that establish prices that are higher
than the ruling companies’ marginal costs. This means that oligopoly firms set prices to
maximize their own profit. Ultimately, it leads to partnerships and collaborations that foster
success for themselves and other firms, specifically smaller companies operating within the
same market or industry.

If one firm in a market lowers its prices on goods and services, attaining optimal sales
growth, firms in direct competition usually follow suit, often creating a price war. Oligopoly
companies generally do not enter such price wars and, instead, tend to funnel more money
into research to improve their goods and services, and into advertising that highlights the
superiority of what they offer over other companies with similar products.

Entering Oligopolistic Markets

Because of the structure of oligopolies, new firms typically find it difficult – if not
impossible – to tunnel into oligopolistic markets that already exist. This is primarily due to
two significant factors: several well-established and successful large firms already dominate
the space, and those companies typically offer the most premium and well-known goods and
services.

For new companies with similar offerings, breaking into an oligopoly is a struggle.
The only firms that typically manage to do so are those with significant funding; an
oligopolistic market requires large amounts of capital to operate in because the economies of
scale generally ensure that the status quo rarely changes.

Oligopolies form when several dominant companies rule over a particular market or
industry, making collaboration and partnerships possible between the firms that exist within
them. While an oligopolistic setup can be incredibly beneficial for companies already

10 NegOr_Q3_AppliedEconomics11_Module5_v2
existing in the marketplace, they are equally as hard to break into for new companies without
substantial funds.

’s More

List down in your notebook at least 3 industries, companies or supplier that belong to
the different type of market structure: Monopoly, Perfect competition, Oligopoly and
monopolistic competition and give the features that make such company belong to that
certain market feature

I Have Learned

Complete the following statements. Write your statements in your activity notebook.

1. As an ABM student, I have learned…_______________________.

2. As an ABM student, it is very important for us to learn…_______________________.
3. Using the knowledge I have learned in this lesson; I will be able
to______________________.

I Can Do

1. Suppose you are to have your business in the future, which market structure would
you prefer your business to fall? Why?
2. If you are to enter the business industry and choose to be on a perfect competition
market structure, what product will you sell and why?

11 NegOr_Q3_AppliedEconomics11_Module5_v2
I. Directions: Identify what is asked in each item. Write the letter of the correct answer in
your notebook.

1. An industry with significant barriers to entry and a single supplier.

A. Perfect Competition B. Monopolistic Competition
C. Oligopoly D. Monopoly
2. A highly concentrated market with just a few interdependent firms.
A. Perfect Competition B. Monopolistic Competition
C. Oligopoly D. Monopoly
3. A highly competitive market with slightly differentiated products.
A. Perfect Competition B. Monopolistic Competition
C. Oligopoly D. Monopoly
4. A highly competitive market where firms are price takers.
A. Perfect Competition B. Monopolistic Competition
C. Oligopoly D. Monopoly
5. Which of the following is the most competitive market structure?
A. Perfect Competition B. Monopolistic Competition
C. Oligopoly D. Monopoly
6. Which of the following is the least competitive market structure?
A. Perfect Competition B. Monopolistic Competition
C. Oligopoly D. Monopoly
7. Which of the following is NOT a feature of monopolistic competition?
A. Numerous sellers B. Product differentiation
C. Numerous buyers D. Homogenous products
8. In which form of market structure would price be the key factor when competing?
A. Monopoly B. Oligopoly
C. Monopolistic competition D. Perfect competition

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NegOr_Q3_AppliedEconomics11_Module5_v2 13
What I Know
1. a
2. d.
3. c.
4. a.
5.d
6.b.
7.c
8. d
9. d
What’s New
(Answers may vary)
What’s More
(Answers may vary)
What I Have Learned
(Answers may vary)
What I Can Do
(Answers may vary)
Assessment
1.d
2.c
3.a
4.b
5. a
6. d
7. d
8. d
References
McEachern, William A. (Author), Burrow, James L., Rosete, Marie Antoinette Lukban
(Contributor). Applied Economics: An Introduction. 2017. Quezon City: Abiva
Publishing House Inc.

Salvatore, Dominick. Market Structure. Accessed: January 9, 2021.

https://global.oup.com/us/companion.websites/9780199397150/student/chapter8/multip
lechoice/

Corporate Financial Institute. Market Structure. n.d. Accessed on January 1, 2021.

https://corporatefinanceinstitute.com/resources/knowledge/economics/monopolistic-
competition-2/

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