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Market Structures and Price - Output Determination

The document discusses market structures and how they determine price and output levels. It describes the main market structures: perfect competition, monopoly, monopolistic competition, and oligopoly. For each structure, it explains how the price and quantity produced are determined, such as by the intersection of supply and demand under perfect competition or by setting price based on marginal revenue equal to marginal cost under monopoly.

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33 views14 pages

Market Structures and Price - Output Determination

The document discusses market structures and how they determine price and output levels. It describes the main market structures: perfect competition, monopoly, monopolistic competition, and oligopoly. For each structure, it explains how the price and quantity produced are determined, such as by the intersection of supply and demand under perfect competition or by setting price based on marginal revenue equal to marginal cost under monopoly.

Uploaded by

softieay4
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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Market Structures and Price -

output Determination
INTRODUCTION

 *In economics, the market is the study about the demand for and supply of a
particular commodity and its consequent fixing of prices for instance the market
may be a bullion market, stock market, or even food grains market.
 *The market is broadly divided into two categories like perfect market and
imperfect market.
 *The perfect market is further divided into pure market (which is a myth) and
perfect market.
 *The imperfect market is divided into monopoly market, monopolistic market,
oligopoly market and duopoly market.
Market Structure

• The level of production of any commodity depends upon structure of its market. Possible
outcomes of sales, revenues, profits are prices and structured under market structures.
• The firms demand curve to the industry demand curve is expected to depend on such
things as the number of sellers in the market and the similarity of their products. These are
aspects of market structures which may be called characteristics of market or
generalization that are likely to influence firm's behaviour and performance.
• To reduce the discussion to manageable size, economists have focused on a few
theoretical market structures that are expected to represent a high proportion of the cases
actually encountered market societies.
Four Theoretical Market Structure

 Perfect competition
 Monopoly
 Monopolistic competition;
 Oligopoly.
*The price and level of production of a commodity depends upon the market
structure of its conditions. Market demand depends on the following factors:
1. Nature of the commodity: It is to be taken into account whether the goods are
homogeneous or heterogeneous.
2. Number of buyers and sellers of the product in the market.
3. Mutual inter-dependence of buyers and sellers.
Price output determination under Perfect
Competition

PERFECT COMPETITION
 It is such a market structure where there are large number of buyers and sellers of a homogeneous product
and the price of the product is determined by the industry. There is one price that prevails in the market. All
firms sell the product at the prevailing price.
PRICE OUTPUT DETERMINATION UNDER PERFECT COMPETITION
 Price Determination under Perfect Competition In perfect competition the market price of a commodity is
determined by its demand and supply. The price of a commodity determines at the point where quantity
demanded equates quantity supplied. It can be explained through the following diagram.
Price output determination under Monopoly

MONOPOLY
 Monopoly means single selling. In brief, monopoly is a market situation in which there is only one seller or
producer of a product for which no close substitution is available. As there is only one firm under
monopoly, that single firm constitutes the whole industry.
PRICE OUTPUT DETERMINATION UNDER MONOPOLY
 A monopoly firm has complete control over the entire supply. It can sell different quantities at different
prices. It can sell more if it cuts down its price. In a monopoly, the price output determination is influenced
by the monopolist's ability to set the price and quantity of the product without facing competition.
Price output determination under Monopolistic
Competition

MONOPOLISTIC COMPETITION
 According to Prof. E. H Chemberlin of America, Monopolistic Competition means a market situation,
in which competition is imperfect. The products of the firms under monopolist competition, are mainly
close substitutes to each other.
PRICE OUTPUT DETERMINATION UNDER MONOPOLISTIC COMPETITION
 In the long period, normal profits will disappear. New firms will enter the industry and consequent
expansion of output will decrease the price and only normal profit are made by the firms. Profits are
normal only when Average Cost (AC) equals the Average Revenue (AR). Then the equilibrium output
will be at AC and MC=MR.
Price output determination under Oligopoly

OLIGOPOLY
 Oligopoly is a situation in which there are so few sellers that each of them is conscious of the results upon
the price of the supply. Which he individually places upon the market. According to J. Stigler "Oligopoly is
that situation in which a firm bases its market policy in part on the expected behaviour of a few close revels".
Further, they may produce homogeneous or differentiated products.
PRICE OUTPUT DETERMINATION UNDER OLIGOPOLY
 Pricing may be in condition of independent pricing, pricing under price leadership and pricing under
collusion.

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