- Market structure refers to the level of competition within a market. The main types are perfect competition, monopoly, monopolistic competition, and oligopoly. - Under perfect competition, there are many small producers and consumers of a standardized product, while a monopoly has a single producer and no close substitutes. Monopolistic competition features product differentiation and free entry/exit of many firms. Oligopoly has a small number of interdependent producers controlling the market. - Profit maximization occurs where marginal revenue equals marginal cost under perfect competition and monopolistic competition. A monopoly chooses output where marginal revenue is zero. Pricing strategies depend on market structure and include cost-plus, penetration, skimming, and prestige pricing.

1. MARKET STRUCTURE

2. Market is a place where buyer and seller meet,
goods and services are offered for the sale and
transfer of ownership occurs.

3. Perfect Competition:
• Perfect Market is a market situation which consists of a very large
number of buyers and sellers offering a homogeneous product. Under
such condition, no firm can affect the market price. Price is determined
through the market demand and supply of the particular product. Eg:
Gold, Agricultural product.
FEATURES:
• A large number of buyers and sellers:
• Homogeneous product:
• Free entry and exit:
• Perfect knowledge:
• Indifference: No buyer has a preference to buy from a particular seller
and no seller to sell to a particular buyer.

4. Monopoly
• Monopoly is a form of market organization in which there is only one
seller of the commodity. There are no close substitutes for the
commodity sold by the seller. Eg: Railway, Microsoft, Google, FB.
• Single person or a firm:
• No close substitute:
• Large number of Buyers:
• Price Maker:
• Supply and Price:The monopolist can fix either the supply or the price.
He cannot fix both. If he charges a very high price, he can sell a small
amount.

5. Monopolistic competition
• Market situation in which there are many sellers producing highly
differentiated products.
Features:
• Existence of Many firms:
• Product Differentiation: Different toothpastes like Colgate, Close-up,
Cibaca, etc.,
• Large Number of Buyers:
• Free Entry and Exist of Firms:
• Selling costs: Spend a lot on selling cost, which includes cost on
advertising and other sale promotion activities.
• Imperfect Knowledge:

6. Oligopoly
• A market in which a two-three large sellers control most of the
production of a good or service and they work together on setting prices.
Eg: oil and gas, airlines, automobiles, and telecom.
• Very few Sellers that control the entire market.
• Products may be differentiated or identical (but they are usually
standardized)
• Medium barriers to entry: Difficult to Enter the market because the
competitors work together to control all the resources & prices.
• The actions of one affects all the producers.
• Collusion = an agreement to act together or behave in a cooperative
manner.

7. Duopoly
• Duopoly refers to a market situation in which there are only two
sellers. As there are only two sellers any decision taken by one seller
will have reaction from the other. Eg: Coca-cola vs Pepsi, Apple iOS
and Google’s Android, Swiggy and Zomato.

8. Pricing strategies under various market
structure
• Penetration pricing is the pricing technique of setting a relatively low initial
entry price, usually lower than the intended established price, to attract new
customers. Eg: Zero balance account, Free subscriptions, Low rate recharges..
• Skimming: The initial high price would generally be accompanied by heavy
sales promoting expenditure. Eg: Apple iphone and Samsung Galaxy, Sony,
Tesla cars introduced at high price.
• Value-based pricing: The term is used when prices are based on the value of a
product as perceived from the customer's perspective. Eg: Gold and diamond,
Water, Emergency time (No negotiation about price)
• Cost plus pricing: The general practice under this method is to add a fair
percentage of profit margin to the average variable cost.
• Transfer pricing: Large size firms often divide their production into different
product divisions or their subsidiaries The goods and services produced by
subsidiary is used by the parent organization E.g. TATA Steel produced steel is
used for manufacturing of vehicles at TATA Motors. Pricing of such transfer of

9. • Prestige pricing: Prestige pricing is followed in markets and segments
of markets where price is associated with quality and more with
prestige – customer perception in this market is, higher the price better
is the quality and more is the prestige. • Branded Jewelry and luxury
automobiles are some of the examples.
• Auction pricing: Auction pricing takes place most in the case of
Government old Asset Selling, selling of antique works and sale of
assets by banks after seizing of loan defaulters asset.
• Peak load pricing: There are certain non storable goods e.g. electricity,
telephones, transport and security services. Eg: During nights, there
are less number of telephonic or mobile conversation, so its off peak
time and companies will be having different pricing for this as
compared to peak load time during day. It will be off peak pricing.

11. Price and output determination under perfect
Competition
• Price under perfect competition is determined by the interaction of two
forces: Demand and Supply.
• Element in Price Determination:
• Market period (Eg: Perishable goods like Vegetables, milk, fruits..)-
Demand determine the price.
• Short period. (Variable inputs can be changed and fixed inputs at
constant).
• Long Run. (Normal price, Influence of supply is greater than
demand)
• Secular period (Very long Period). ( All economic factors like
supply of raw materials, capital etc have time to alter).Eg:
Medicines.

12. Equilibrium price of firm and industry

14. Price determination under Monopoly
Quantity Price Total
Revenue
Marginal
Revenue
Total Cost Marginal
cost
Q P TR MR TC MC
1 1,200 1,200 1,200 500 500
2 1,100 2,200 1,000 750 250
3 1,000 3,000 800 1,000 250
4 900 3,600 600 1,250 250
5 800 4,000 400 1,650 400
6 700 4,200 200 2,500 850
7 600 4,200 0 4,000 1,500

16. Explanation:
• Thus, a profit-maximizing monopoly should follow the rule of producing
up to the quantity where marginal revenue is equal to marginal cost—that
is, MR = MC.
• Marginal revenue is 600 and marginal cost is 250, so producing this unit
will clearly add to overall profits. At an output of 5, marginal revenue is
400 and marginal cost is 400, so producing this unit still means overall
profits are unchanged. However, expanding output from 5 to 6 would
involve a marginal revenue of 200 and a marginal cost of 850, so the
sixth unit would actually reduce profits.

17. Price Determination in Monopolistic
Competition
• Price and output determination under monopolistic competition is
governed by the cost and revenue curves of the firm.
• Supernormal profit: AR>AC
• Normal profit: AR=AC
• Losses: AR<AC

18. Quantity Price Total
Revenue
Average
Revenue
Marginal
Revenue
Total Cost Average cost Marginal
cost
Profit
(TR-TC)
Q P TR AR
(Demand)
MR TC AC MC
1 1,200 1,200 1,200 1,200 500 500 500 500
2 1,100 2,200 1,100 1,000 750 375 250 1450
3 1,000 3,000 1,000 1,200 1,000 333 250 2000
4 900 3,600 900 1,600 1,250 313 250 2350
5 800 4,000 800 400 1,650 330 400 2350
6 700 4,200 700 200 2,500 417 850 1700
7 600 4,200 600 0 4,000 571 1,500 200
8 500 4,000 500 -200 6,400 800 2,400 -2400

20. Explanation
• To calculate profit, start from the profit-maximizing quantity, which is
5. Next find total revenue which is the area of the rectangle with the
height of P = 800 times the base of Q = 5. Next find total cost which is
the area of the rectangle with the height of MC = 400 times the base of
Q = 5. The difference between the two areas is profit, the small
rectangle above total cost in the figure.

21. • Step 1: The Monopolist Determines Its Profit-Maximizing Level of Output
• The firm can use the points on the demand curve (D) to calculate total revenue, and then, based on total revenue,
calculate its marginal revenue curve. The profit-maximizing quantity will occur where MR = MC or at the last
possible point before marginal costs start exceeding marginal revenue. Here, MR = MC occurs at an output of 5.
• Step 2: The Monopolist Decides What Price to Charge
• The monopolist will charge what the market is willing to pay. A dotted line drawn straight up from the profit-
maximizing quantity to the demand curve shows the profit-maximizing price which is $800. This price is above the
average cost curve, which shows that the firm is earning profits.
• Step 3: Calculate Total Revenue, Total Cost, and Profit
• Total revenue is the overall shaded box, where the width of the box is the quantity sold and the height is the price is
5 x $800 = $4000. In Figure, the bottom part of the shaded box, which is shaded more lightly, shows total costs; that
is, quantity on the horizontal axis multiplied by average cost on the vertical axis or 5 x $330 = $1650. The larger box
of total revenues minus the smaller box of total costs will equal profits, which the darkly shaded box shows. Using
the numbers gives $4000 – $1650 = $2350.

23. Quantity Price Total
Revenue
Average
Revenue
Marginal
Revenue
Total
Cost
Marginal
Cost
Average
cost
Profit
10 23 230 23 — 340 – 34 -110
20 20 400 20 17 400 6 20 0
30 18 540 18 14 480 8 16 60
40 16 640 16 10 580 10 14.5 60 Super profit
AR>AC
50 14 700 14 6 700 12 14 0 Normal Profit
( AR=AC)
60 12 720 12 2 840 14 14 -120 Loss(AR<AC)
70 10 700 10 –2 1020 18 14.6 -320
80 8 640 8 –6 1280 26 16 -640

24. Supernormal Profit with Downward Sloping
Demand Curve

25. Normal Profits with a Downward Sloping
Demand Curve

26. Loss With a Perfectly Elastic Demand Curve