MARKET STRUCTURES Monopolistic competition is a market structure which

combines elements of monopoly and competitive

Monopoly - A market structure characterized by a single
markets. Essentially a monopolistic competitive market is
seller, selling a unique product in the market. In a
one with freedom of entry and exit, but firms can
monopoly market, the seller faces no competition, as he
differentiate their products. Therefore, they have an
is the sole seller of goods with no close substitute.
inelastic demand curve and so they can set prices.
In a monopoly market, factors like government license, However, because there is freedom of entry,
ownership of resources, copyright and patent and high supernormal profits will encourage more firms to enter
starting cost make an entity a single seller of goods. All the market leading to normal profits in the long term.
these factors restrict the entry of other sellers in the
Features of Monopolistic Competition:
market. Monopolies also possess some information that
is not known to other sellers. 1. Many firms.
2. Freedom of entry and exit.
Characteristics associated with a monopoly market make
3. Firms produce differentiated products.
the single seller the market controller as well as the price
4. Firms have price inelastic demand; they are price
maker. He enjoys the power of setting the price for his
makers because the good is highly differentiated
goods.
5. Firms make normal profits in the long run but
Features of Monopoly Market: could make supernormal profits in the short term
6. Firms are allocatively and productively inefficient.
1. Lack of Substitute
2. Barriers to Entry Examples of Monopolistic Competition
3. No competition
1. Restaurants
4. Price Maker
2. Salons
5. Profits
3. Clothing
4. TV Stations/Programs

Perfect competition is a market structure where many

firms offer a homogeneous product. Because there is
Oligopoly – most common market structure wherein
freedom of entry and exit and perfect information, firms
there are a few interdependent firms dominate the
will make normal profits and prices will be kept low by
market. They are likely to change their prices according to
competitive pressures.
their competitors. The concentration ratio measures the
Features of perfect competition: market share of the largest firms.

1. Many firms. Features of Oligopoly:

2. Freedom of entry and exit; this will require low
1. Interdependence
sunk costs.
2. Advertising
3. All firms produce an identical or homogeneous
3. Group Behavior
product.
4. Competition
4. All firms are price takers, therefore the firm’s
5. Barriers to entry of Firms
demand curve is perfectly elastic.
6. Lack of Uniformity in size
5. There is perfect information and knowledge
7. Existence of Price Rigidity
Examples of Perfect Competition: 8. No Unique Patter of Price Behavior
9. Indeterminateness of Demand Curve
1. Foreign Exchange Rate
2. Agricultural Markets
3. Internet related Industries

FAJARDO, RACHEL MAE R. | MANAGEMENT ECONOMICS 1

 TIME VALUE OF MONEY
Present Value - is the current value of a future sum of
money or stream of cash flows given a specified rate of
return.
KEY TAKEAWAYS:
 Present value is the concept that states an amount of
money today is worth more than that same amount
in the future. In other words, money received in the
future is not worth as much as an equal amount
received today.
 Money not spent today could be expected to lose
value in the future by some implied annual rate,
which could be inflation or the rate of return if the
money was invested.
 Calculating present value involves making an
assumption that a rate of return could be earned on
the funds over the time period.
Marginal Analysis - is an examination of the additional
benefits of an activity compared to the additional costs
incurred by that same activity. Companies use marginal
analysis as a decision-making tool to help them maximize
their potential profits. Marginal refers to the focus on the
cost or benefit of the next unit or individual, for example,
the cost to produce one more widget or the profit earned
by adding one more worker.
KEY TAKEAWAYS:
 Companies use marginal analysis as a decision-
making tool to help them maximize their potential
profits.
 When a manufacturer wishes to expand its
operations, either by adding new product lines or
increasing the volume of goods produced from the
current product line, a marginal analysis of the costs
and benefits is necessary.
 Marginal analysis can also help in the decision-making
process when two potential investments exist, but
there are only enough available funds for one. By
analyzing the associated costs and estimated
benefits, it can be determined if one option will result
in higher profits than another.
FAJARDO, RACHEL MAE R. | MANAGEMENT ECONOMICS
THE LAW OF DEMAND AND SUPPLY
The law of supply and demand – is a theory that explains
the interaction between the sellers of a resource and the
buyers for that resource. The theory defines what effect
the relationship between the availability of a particular
product and the desire (or demand) for that product has
on its price. Generally, low supply and high demand
increase price and vice versa.
KEY TAKEAWAYS
 The law of demand says that at higher prices, buyers
will demand less of an economic good.
 The law of supply says that at higher prices, sellers will
supply more of an economic good.
 These two laws interact to determine the actual
market prices and volume of goods that are traded on
a market.
 Several independent factors can affect the shape of
market supply and demand, influencing both the
prices and quantities that we observe in markets
Surplus – describes the amount of an asset or resource
that exceeds the portion that's actively utilized. A surplus
can refer to a host of different items, including income,
profits, capital, and goods. In the context of inventories, a
surplus describes products that remain sitting on store
shelves, unpurchased. In budgetary contexts, a surplus
occurs when income earned exceeds expenses paid. A
budget surplus can also occur within governments when
there's leftover tax revenue after all governmental
programs are fully financed.
KEY TAKEAWAYS
 A surplus describes a level of an asset that exceeds
the portion used.
 An inventory surplus occurs when products that
remain unsold.
 Budgetary surpluses occur when income earned
exceeds expenses paid.
 A surplus results form a disconnect between supply
and demand for a product, or when some people are
willing to pay more for a product than other
consumers.
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