This document discusses different types of market structures: 1) Perfect competition has many small firms and buyers, homogeneous products, no barriers to entry or exit, and perfect information. Firms are price takers. 2) Monopolistic competition and oligopoly have differentiated products and many firms/buyers. Firms have some control over prices. 3) Monopoly has a single seller, barriers to entry, and the ability to set prices. The monopolist is the sole supplier.

1. Stephin Abraham Sabu
Roll No. 15
S1 IEM

2. What is a Market?
• Place where there are many buyers and sellers .
• Actively engaged in buying and selling acts.
• Contact through different means of communication
like letters, telephone etc.
• Thus, It does not mean a particular place but the
entire area where buyers and sellers of a
commodity are in close contact and they have one
price of same commodity.

3. Market StructureMarket Structure
The selling environment in which a firm
produces and sells its product is called a
market structure.
Defined by three characteristics:
◦ The number of firms in the market
◦ The ease of entry and exit of firms
◦ The degree of product differentiation

4. TYPES OF MARKET STRUCTURETYPES OF MARKET STRUCTURE
• Perfect Competition
• Monopoly Competition
• Monopolistic Competition
• Oligopoly Competition

5. IntroductionIntroduction
Perfect competition, with an infinite
number of firms, and monopoly, with a
single firm, are polar opposites.
• Monopolistic competition and oligopoly lie
between these two extremes.

6. Perfect CompetitionPerfect Competition
A perfectly competitive market has the
following characteristics:
There are many buyers and sellers in the market.
The goods offered by the various sellers are
largely the same - Homogeneous product
The price of the product is determined by
the industry .
Firms can freely enter or exit the market.

7. • Large number of buyers and sellers
• Homogeneous product
• No barriers to entry
• Perfect mobility of factors of production
• Perfect knowledge about the market
conditions
• Non- existence of transport cost

8. The Meaning of CompetitionThe Meaning of Competition
As a result of its characteristics, the perfectly
competitive market has the following
outcomes:
The actions of any single buyer or seller in
the market have a negligible impact on the
market price.
Each buyer and seller takes the market
price as given.
Thus, each buyer and seller is a price taker.

9. Perfect CompetitionPerfect Competition

10. Profit Maximization: Using MR and MCProfit Maximization: Using MR and MC
curvescurves

11. (a) Profit case (b) Zero profit case (c) Loss case
Determining Profits GraphicallyDetermining Profits Graphically
Quantity Quantity Quantity
Price
65
60
55
50
45
40
35
30
25
20
15
10
5
0
65
60
55
50
45
40
35
30
25
20
15
10
5
0
1 2 3 4 5 6 7 8 910 12 1 2 3 4 5 6 7 8 910 12
D
MC
A P = MR
B ATC
AVC
E
Profit
C
MC
ATC
AVC
MC
ATC
AVC
Loss
65
60
55
50
45
40
35
30
25
20
15
10
5
0
1 2 3 4 5 6 7 8 910 12
P = MR
P = MR
Price Price
© The McGraw-Hill Companies, Inc., 2000Irwin/McGraw-Hill

12. In the long-run, the firm exits if the revenue it would
get from producing is less than its total cost.
Exit if TR < TC
Exit if TR/Q < TC/Q
Exit if MR < ATC
A firm will enter the industry if such an action would
be profitable.
Enter if TR > TC
Enter if TR/Q > TC/Q
Enter if MR > ATC

13. MonopolyMonopoly
• It is a market structure in which there is
only a single seller of the product .
• One firm has full control over the supply
of the product .
• Example : Indian Railway

14. TYPESTYPES ofof MONOPOLYMONOPOLY
Natural Monopoly – limited supply of raw
materials
Social Monopoly – owned & managed by
government
Legal Monopoly – patents, trademarks etc.
Voluntary Monopoly – combination of
different producers

15. • Sole supplier of the product
• Large number of buyers
• No close substitutes
• One firm industry
• Varies from industry to industry
• Absence of entry
• Monopolist is price maker

16. • It is a mid-way between perfect
competition and monopoly .
• In this the number of buyers and sellers
is high considering different products
• Most common market situation

17. • Large number of firms
• Product differentiation - hetrogenous
• Freedom of entry and exit
• Price policy
• Selling cost
• Close substitutes

18. • It is a market structure in which there are few
sellers of a product selling identical or
differentiated products .
• If they are selling identical products, it’s a case
of Pure Oligopoly.
• If they are selling differentiated products, it’s
a case of Differentiated Oligopoly .

19. • Relatively small number of sellers
• Interdependence of the firms
• Price rigidity and price war
• Difficulty in entry and exit
• Selling Costs
• Indeterminateness of the demand
curve