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Market Structures: 1.perfect Competition 2. Monopoly 3. Oligopoly 4. Monopolistic Competition

This document discusses different market structures: perfect competition, monopoly, oligopoly, and monopolistic competition. It provides details on the key characteristics of each structure, including the number of sellers, product differentiation, freedom of entry/exit, and control over price. Perfect competition is defined as having many buyers and sellers, homogeneous products, free entry and exit, and sellers being price takers. In the short run under perfect competition, firms will produce where price equals marginal cost to maximize profits, while in the long run all supernormal profits are competed away and firms break even.

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Abhishek Deshpande
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122 views13 pages

Market Structures: 1.perfect Competition 2. Monopoly 3. Oligopoly 4. Monopolistic Competition

This document discusses different market structures: perfect competition, monopoly, oligopoly, and monopolistic competition. It provides details on the key characteristics of each structure, including the number of sellers, product differentiation, freedom of entry/exit, and control over price. Perfect competition is defined as having many buyers and sellers, homogeneous products, free entry and exit, and sellers being price takers. In the short run under perfect competition, firms will produce where price equals marginal cost to maximize profits, while in the long run all supernormal profits are competed away and firms break even.

Uploaded by

Abhishek Deshpande
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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Market structures

1.Perfect Competition
2. Monopoly
3. Oligopoly
4. Monopolistic Competition
Determinants of market structure

Number of sellers
Nature of the product homogenous
(identical), differentiated?
Freedom of entry and exit
Control over price
Non price Competition

Types of profit :


Economic profit is Total Revenue less explicit
and implicit costs.
Accounting profit is total revenue less explicit
costs
Normal profit is an implicit cost which the
opportunity cost for the entrepreneur the
return that he could have earned in the next
best alternative.
Features of the four market structures
Type of
market
Number
of firms
Freedom of
entry
Nature of
product
Examples Implications for
demand curve
faced by firm
Perfect
competition
Very
many
Unrestricted
Homogeneous
(undifferentiated)
Cabbages, carrots
(approximately)
Horizontal:
firm is a price taker
Monopolistic
competition
Many /
several
Unrestricted Differentiated
Builders,
restaurants
Downward sloping,
but relatively elastic
Oligopoly Few Restricted
Undifferentiated
or differentiated
Cement
cars, electrical
appliances
Downward sloping.
Relatively inelastic
(shape depends on
reactions of rivals)
Monopoly One Restricted or
completely
blocked
Unique
Local water
company, train
operators (over
particular routes)
Downward sloping:
more inelastic than
oligopoly. Firm has
considerable
control over price
Perfect Competition:
Free entry and exit to industry
Homogenous product identical - no
consumer preference
Large number of buyers and sellers no
individual seller can influence price
Sellers are price takers have to accept
the market price
Perfect information available to buyers and
sellers

Short Run Equilibrium
Since the firm is a price taker, he can
sell any quantity at the given price.
This implies that his marginal revenue
curve is horizontal
MR = Price
Perfect Competition
Short-run equilibrium of the firm
Price
given by market demand and supply
Output
where P = MC
Profit= revenue - cost
possible supernormal profits
fig
O

(b) Firm
Q (thousands)
O
(a) Industry
P
Q (millions)
S
D
P
e
MC
AR
D = AR
= MR
Q
e
AC
AC
Short-run equilibrium of industry and firm under
perfect competition
fig
D
2
Short-run shut-down point
O O
(a) Industry
P Rs
P
2
Q (millions)
S
(b) Firm
AR
2
D
2
= AR
2
= MR
2
MC
AC
AVC
Q (thousands)
fig
O O
P
Q (millions)
S
1
D
LRAC
P
L
P
1
Q
L
S
e
AR
1
D
1
AR
L
D
L
Q (thousands)
Long-run equilibrium under perfect
competition
New firms enter Supernormal profits
Profits return
to normal
(a) Industry
(b) Firm
Perfect Competition

The long run
long-run equilibrium of the firm
all supernormal profits competed away
LRAC = AC = MC = MR = AR
Rs
Q O
(SR)AC
(SR)MC
LRAC
AR = MR
D
L
LRAC = (SR)AC = (SR)MC = MR = AR
Long-run equilibrium of the firm under
perfect competition
Perfect Competition
The long run
long-run equilibrium of the firm
all supernormal profits competed away
LRAC = AC = MC = MR = AR
long-run industry supply curve
incompatibility of economies of scale with
perfect competition
Does the firm benefit from operating
under perfect competition?

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