Market Structures

Topics: Monopoly, Oligopoly, Perfect competition Pages: 11 (2699 words) Published: October 29, 2011
Kenya Institute of Management

Diploma Course in Management


Work Based Assignment

Done By: Daniel Mwathe Mugo
Student No: NRB-44592
Table of Contents
Market Structures3
Equilibrium Price and Output3
Price Discrimination5
Advantages of Monopoly5
Disadvantages of Monopoly6
Monopolistic Competition6
Characteristics of Monopolistic Competition6
Equilibrium level6
Features of Oligopoly8
Competition and Collusion8
Duopoly: A type of Oligopoly8
Perfect Competition9
Features/Characteristics or Conditions9
Importance of Perfect Competition10
Advantages of perfect competition11
Disadvantages of Perfect Competition11
Kinked Demand Theory of Oligopoly12

1.Market Structures
a)Define Market Structures

b)Write short Notes on the following


ii)Monopolistic Competition

iii)Perfect Competition



c)Explain the concept of a Kinked Demand Curve

Market Structures
A market Structure is the manner in which a market is organized, based largely on the number of firms in the industry. The four basic market structure models are: perfect competition, monopoly, monopolistic competition, and oligopoly. The primary difference between each is the number of firms on the supply side of a market. Both perfect competition and monopolistic competition have a large number of relatively small firms selling output. Oligopoly has a small number of relatively large firms. And monopoly has a single firm. In

Market Structures, there can be Imperfect Competition or Perfect Competition. Imperfect Competition differs from perfect competition in that there may be one or small number of firms dominating the market.

There are three main types of Imperfect Competition.

b)Monopolistic Competition
A monopoly is a market structure in which there is only one producer/seller for a product. In other words, the single business is the industry. Entry into such a market is restricted due to high costs or other impediments, which may be economic, social or political. For instance, a government can create a monopoly over an industry that it wants to control, such as electricity. Another reason for the barriers against entry into a monopolistic industry is that oftentimes, one entity has the exclusive rights to a natural resource. For example, in Saudi Arabia the government has sole control over the oil industry. A monopoly may also form when a company has a copyright or patent that prevents others from entering the market. Pfizer, for instance, had a patent on Viagra. Equilibrium Price and Output

As with firms in other market structures, a monopolist will maximize profit where MC = MR. In the short run, the monopolist may make sub-normal profit, normal profit or supernormal profits. However, in the long run, since there are barriers to entry of new firms, the supernormal profits that are made by the monopolist will not be chipped away. As for the monopolist who makes normal profits or abnormal profits in the short run, it will make supernormal profits in the long run.

In the long run, the firm will make Supernormal profits only. This is because there are barriers to the entry of new firms. Price Discrimination
Discrimination Monopoly (price discrimination) is said to exist when a business is able to charge two or more different prices for the same project.

There are three varieties of price discrimination:

i)First degree Price Discrimination
ii)Second degree Price Discrimination
iii)Third degree Price Discrimination

Price Discrimination in different markets is separated by:
Consumer’s Ignorance
Advantages of Monopoly
No risk of over production
There is enough capital for research
Reduction in price of good
Efficient use of resources
Control over entire market
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