Market Structures And Price Out Determination

Topics: Monopoly, Economics, Perfect competition Pages: 25 (1057 words) Published: April 22, 2015
Market
Structures
And Price Out
Determinatio
n

 Market

Structures

represents by four basic market models.
 Theoretical frameworks for existing firms and
industries in the real world.


 Firms

and industries

play a vital role in our economy. They always seek
ways of reducing costs of production and of
improving the quality of their goods and services,
especially in a competitive market.
 In the view of the scarcity of resources, they should
strive to maximize their employment and
production. It is their responsibility to pursue
economic efficiency as their objective.


 Economic


efficiency

the relationship between input (factors of
production) and output (goods and services
produced by the factors of production).

Basic Market Models


Perfect/pure types



perfect or pure competition
pure monopoly

Imperfect/non-pure

type

monopolistic competition
 oligopoly


Market Models Defined
Pure competition
is a market situation where
there is a large number of
independent sellers offering
identical products.



Pure

monopoly

refers to a market situation
where there is only one seller
or producer supplying unique
goods and services.



Monopolistic

competition

pertains to a market situation where
there are a relatively large number of
small producers or suppliers selling
similar but not identical products.



Oligopoly

is associated with a market situation
where there are few firms offering
standardized or differentiated goods
and services.



Market
models
characteristic
s

Pure competition
There is a large number of independent
sellers.
 Products are identical or homogeneous.
 No single seller and no single buyer can
influence the change in the market price of
product.
 It is easy for new firms or sellers to enter
the market and for existing firms or sellers
to leave the market.
 There is no non-price competition like
advertising, sales promotion, or packaging.


Pure monopoly
 There

is only one producer or seller.
 Products are unique in the sense that
there are no good or close substitutes
available.
 The monopolist makes the price.
 It is extremely difficult for new firms to
enter the market.
 There may be or no extensive
advertising or sale promotion depending
on the goods or services of the
monopolists.

Monopolistic
competition
 There

are a large number of
sellers acting independently.
 Products are differentiated.
 There is a limited control of price.
 Entry of new firms in the market
is relatively easy.
 There is an aggressive non-price
competition in the product
quality, credit terms, services,
locations, and physical

Oligopoly
 There

are very few firms which
dominate the market.
 Products are identical or
differentiated.
 There is a price agreement
among the producers to promote
their own economic interests.
 The entry of a new competitor in
the market is difficult.
 There is a strong advertising

DETERMINANTS OF
MARKET STRUCTURE
 Government

laws and policies

 Technology
 Business


policies and practices
Economic freedom

PRICE OUTPUT
AND
DETERMINATION

Pure Competition
The demand curve of an individual
firm under a purely competitive
industry is perfectly elastic. This is
because the decrease or increase of
the output of a single seller has no
effect on the total supply and
market price.
o In the case of market demand curve
(demand curve of all producers of a
particular product), it is elastic.
o

o All

producers acting at the
same time can affect total
supply, and therefore also
market price.
o They can sell more units of
their output at a lower price.
This is the law of demand.

Table
Price
5.1

Quantity
demanded

TR

MR

AR

P5

1

P5

P5

P5

5

2

10

5

5

5

3

15

5

5

5

4

20

5

5...
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