FIRST QUARTER

MODULE 5 – WEEK 5
MARKET STRUCTURE

CONTENT STANDARD : The learner demonstrates an understanding

of economics as an applied science and its
utility in addressing the economic problems
of the country.
PERFORMANCE STANDARD : The learners shall be able to analyze and
propose solution/s to the economic problems
using the principles of applied economics.
LEARNING OUTCOMES : Illustrate the behavior of each market
through a graphic organizer.
COMPETENCIES : Differentiate various market structures in
terms of: number of sellers, types of product,
entry/exit to market, market power and
others
ABM_AE12-Ie-h-7

TOPICS : Market Structure: Perfect Competition,

Monopoly, Monopolistic Competition and
Oligopoly

What I Need To Know

This module will help you understand the behavior and decision
making of the different market structures in our economies in terms of
production, cost and price determination. The Philippine economy have those
four market structures and each can be classified according to their nature
in the market.

At the end of this module, you are expected to:

a. Identify the different market and its characteristics.
b. Analyze the behavior of each market structure in terms of its
control and market power.
c. Illustrate the behavior of each market through a graphic
organizer.

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 What I Know
MULTIPLE CHOICE: Write your letter of choice on a separate sheet of paper.

1. Which form of business enterprise accounts for the largest proportion

of total output?
a. Corporation c. Partnerships
b. Proprietorship d. Cooperatives

2. For an imperfectly competitive firm _______________.

a. Total revenue is a straight upsloping line because a firm’s
sales are independent of product price
b. The marginal revenue curve lies above the demand curve
because any reduction in price applies to all units sold
c. The marginal revenue curve lies below the demand curve
because any reduction in price applies to all units sold
d. The marginal revenue curve lies below the demand curve
because any reduction in price applies only to the extra unit
sold

3. Economic profit in the long run is ________________.

a. Possible for both a pure monopoly and a pure competitor
b. Possible for a pure monopoly but not for a pure competitor
c. Impossible for both a pure monopolist and a pure competitor
d. Only possible when barriers to entry are non-existent

4. Which of the following statements is correct?

a. The monopolist will maximize profit by producing at that
point on the demand curve where elasticity is zero
b. In seeking the profit maximizing output, the monopolist
under allocates resources to its production
c. The monopolist maximizes profits by producing that output
at which the differential between price and average cost is
the greatest
d. Purely monopolistic sellers earn only normal profits in the
long run

5. Oligopoly is more difficult to analyze than other market models

because ______________________.
a. The number of firms is so large that market behavior cannot
be accurately predicted
b. The marginal cost and marginal revenue curves of an
oligopolist play no part in the determination of equilibrium
price and quantity
c. Of mutual interdependence and the fact that oligopoly
outcomes are less certain than in other market models

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 d. Unlike the firms of other market models, it cannot be
assumed that oligopolist are profit maximizers

6. Oligopolistic industries __________________.

a. Are characterized by a relatively large number of small sellers
b. May produce either standardized or differentiated products
c. Always produce differentiated products
d. Always produce standardized products

7. Game theory is best suited to analyze the pricing behavior of ________.

a. Monopoly c. Monopolistic competition
b. Perfect competition d. Oligopoly

8. The likelihood of a cartel being successful is greater when ___________.

a. Firms are producing a differentiated rather than a
homogeneous product
b. Cost and demand curves of various participants are very
similar
c. The number of firms involved is relatively large
d. The economy is in the recession phase of the business cycle

9. Secret conspiracies to fix prices are examples of ________________.

a. Cartels c. Overt Collusion
b. Price leadership d. Covert Collusion

10. An industry comprised of a very large number of sellers that are

producing a homogeneous or standardized product is called ________.
a. Monopolistic competition c. Monopoly
b. Oligopoly d. Perfect competition

What’s In

Our goal is to examine how firms make production decisions in

competitive markets. Before we can continue on the next lesson, I need you
to review your production and costs concepts. On a separate sheet of paper,
fill in the type of cost that best completes the phrases below. Please refer your
choices on the box.

Opportunity cost Variable cost Total cost

Average total cost Fixed cost Marginal cost

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 1. The true cost of taking some action is ________________.
2. A cost that does not depend on the quantity produced is a
_______________.
3. In the ice cream industry, ______________ includes the cost of cream
and sugar but not the cost of the factory.
4. The _________ is falling when marginal cost is below it and rising when
marginal cost is above it.
5. The cost of producing an extra unit of output is _______________.

What’s New

A. Take the case of the Shell Oil Company and Caltex Oil Company,
both of them advertise to persuade consumers particularly car
drivers to buy their product. In relation to this, list down at least 5
company firms that compete actively in terms of the following
characteristics below. Write your answer on a separate sheet of
paper.

1. Advertisement
2. Customer service
3. Product

B. What is your definition of competition?

What Is It

Competition usually refers to competitive behavior of individual firms

in a competitive market structure. A competitive market is called the perfectly
competitive market. The competitiveness of the market is the extent at which
an individual firms have power to influence the market prices or the terms in
which their product is sold. The extreme form of competitiveness occurs when
each firm has zero market power.
The market power and its competitiveness in the market depends on its
competitive behavior as to:
1. Perfect competition
2. Monopoly
3. Oligopoly
4. Monopolistic competition

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PERFECT COMPETITION

The perfectly competitive market provides the benchmark for

comparison to other competitive markets. The characteristics of a perfectly
competitive market are the following:

a. Firms in the industry are selling identical products which are termed
as homogeneous products. Agricultural products are good examples of
this type of market.
b. It is characterized by the freedom of entry and exit. There is no legal
prohibitions or economic barrier to enter or exit from the industry. This
means that a new firm can enter the industry and can also leave the
industry.
c. The firm is a price taker which means that the firm can alter its rate of
production and sales without significantly affecting the market price of
its product.
d. The firm operating in this market has no power to influence that
market.
e. There are many buyers and sellers in the market. A market with many
buyers and sellers trading identical products makes each of them a
price taker.

The typical market that we have like Carbon market or Tabo-an market
depicts the characteristics of a perfectly competitive market.

MONOPOLY

The word monopoly comes from the Greek words monos and polein
which means “alone to sell.” Monopoly occurs when the output of an entire
industry is produced and sold by a single firm called a monopolist or a
monopoly firm. The characteristics of a monopoly firm are the following:
a. Products do not have a close substitute.
b. Barriers to entry – other firms cannot enter the market and compete
because of the following reasons:
1. A key resource is owned by a single firm. Which means that
the monopolist has the exclusive ownership of the resource.
Electricity and water are good example of this market.
2. The government gives a single firm the exclusive right to
produce some goods and services. In Cebu City, VECO and
MCWD have the exclusive right to sell the goods and services.
3. The cost of production makes a single producer more efficient
than a large number of producers.

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Another good example of a barrier to entry are copyright, patent, licenses and
the like.

A monopoly can arise for many firms in an industry to agree to cooperate with
one another and behave as if they were a single seller in order to maximize
profit thus eliminating competition among themselves. Such group of firms is
called a cartel. The firms can agree among themselves to restrict output to
the level that maximizes their joint profits is to establish a quota for each
firms output. Such an agreement of the firms on the price of the product is
called collusion.

Price discrimination is evident in the monopolistic market. It is a business

practice of selling the same goods or services at different prices to different
customers. Say for example, the prices of electricity and water in Cebu
provinces is different than that in the city.

OLIGOPOLY

In oligopolistic markets, business strategy is the most significant game

played with rival competitors. Firms have to think not only about the firms’
direct consequences but also strategic consequences that they have on their
competitors. The characteristics of an oligopoly are the following:
a. There are only few sellers. However, the actions of one seller in the
market can have a large impact on the profits of all other sellers. It only
means that firms cannot make their pricing, production and other
decisions independently from similar actions taken by the rival firms.

b. Offering similar or identical products. Cartelization do not only occur in

a monopolistic market, even in oligopolistic market transactions. A good
example of this industry are the shipping industry, telecommunications
industry, internet provider services like Globe and Smart.

Oligopolistic firms would like to reach the monopoly outcome but it

requires cooperation from other firms. In order to analyze the economics
of cooperation, you have to learn on what we call a game theory.

A game theory is the study of how people behave in a strategic

situation. Considering the oligopolistic market is a small market, it is
important to consider how other sellers respond to the actions of other
sellers. A particular important game is called the prisoners dilemma. This
game provides insight into the difficulty of maintaining cooperation among
its members and in the language of a game theory, a strategy is called a
dominant strategy, if it is the best strategy for a player to follow regardless

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of the strategies pursued by other players. Say for example, if there are two
criminals suspected of committing a crime, the sentence that each receives
depends both on one criminal’s decision to either confess or remain silent
and on the decision made by the other criminal. To illustrate the prisoners’
dilemma, refer to the table below.

ALPHA

Confess Remain silent

Alpha gets 8 years Alpha gets 20 years

Confess
Beta gets 8 years Beta goes free

BETA Alpha goes free Alpha gets 1 year

Remain
silent Beta gets 20 years Beta gets 1 year

The prisoner’s dilemma is anchored on a police investigation wherein

an officer investigates a crime. As you can see, each of the strategies will
result to a particular outcome but it is up to the firm or player on what
decisions to take. The outcome is called Nash equilibrium, a situation in
which economic actors interacting with one another each choose their best
strategy given the strategies the others have chosen.

A game theory illustration of the basic dilemma of oligopolists, is to

cooperate or to compete.
Presently, China and Russia express their intention to provide a
COVID-19 vaccine, the question is, which of these two countries will the
government choose for the vaccine? The prisoners’ dilemma can help the
government decide which of these two countries to take for the vaccine.
The decision of the government requires a lot of extensive research and not
merely on friendship or ties.

MONOPOLISTIC COMPETITION

The competitive market is characterized by the following:

a. Many firms are selling products that are similar but not
identical.
b. It has an element of monopoly and perfect competition.

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 A good example of this market are the ones we see in the supermarket
or department stores like toiletries, apparels or through films and novels.

What’s More

Identify the word referred in each statement and search the answer from the
box. Write your answer on a separate sheet of paper.

I U O L I G O P O L I S T S
A M A R K E T R R M R G J I
B R P S G X Y I E O T Y F N
M C A E V I R C V N U P D F
A D V E R T I S E O G E B O
R H R C U F R G N P O W E R
G L P B O Y E K U O Y A A M
I U R E Y S N C E L B F Z A
N C O M P E T I T I O N Y T
A O F D J N R P T S M H X I
L P I G K W Y L H T A K P O
A R T Y I N N O V A T I O N
G A M E T H E O R Y P L M X

1. Sellers that have undue influence in the market.

2. It is the interaction between buyers and sellers.
3. A seller that has the monopoly power.
4. It is the income generated from the business.
5. It means extra, additional or increment.
6. It is the facts provided or learned about something.
7. It is the process of innovating.
8. It is the study by which economic agents produce outcomes with
respect to the preferences.
9. It means a financial gain.
10. It is the expenses to acquire something
11. It is the condition of competing
12. A business has the freedom of _________ and _________ in the market.
13. A word that means “not perfect”
14. It refers to having all the desired qualities
15. An activity that draws attention to a product or service

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 What I Have Learned

Compare and contrast the characteristics of competitive markets using a

graphic organizer. Write your answer on a separate sheet of paper.

What I Can Do

1. Think of a laundry detergent market. List down at least 5 brands of

laundry detergent bars. Among the listed brands, which of them is your
favorite and why? Write your answer on a separate sheet of paper.

1.
2.
3.
4.
5.

2. Based on your personal experience, illustrate an example showing how

the prisoners’ dilemma helps you in your decision making and explain
the outcome of your decision. Use the template below.

Situation Dilemma A

Dilemma B

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 Assessment

Multiple Choice: Write the letter of the correct answer on a separate sheet of
paper.

1. Which of the following market structures has a clear cut mutual

interdependence with respect to price output policies?
a. Monopoly c. Monopolistic competition
b. Oligopoly d. Perfect competition

2. Which of the following industries is most likely a perfect competition?

a. Agriculture c. Steel
b. Clothing d. Plant implements

3. What competitive market does an automobile industry belong?

a. Monopoly c. Monopolistic competition
b. Oligopoly d. Perfect competition

4. Economists use the term imperfect competition to describe _________.

a. All industries which produce standardized products
b. Any industry in which there is no non-price competition
c. A pure monopoly only
d. Those markets which are not purely competitive

5. A one-firm industry is called __________________.

a. Monopoly c. Monopolistic competition
b. Oligopoly d. Perfect competition

6. A perfect competitive seller is _________________.

a. Both a price maker and price taker
b. Neither a price maker nor a price taker
c. A price taker
d. A price maker

7. Which of the following is NOT a characteristic of a perfect competitive

market?
a. Price strategies by firms
b. No barriers to entry
c. A standardized product
d. A large number of sellers

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8. Which of the following is correct?
a. Both perfectly competitive and monopolistic firms are price
takers
b. Both perfectly competitive and monopolistic firms are price
makers
c. A perfectly competitive firm is a price taker whereas the
monopolistic competitive firm is a price maker
d. A perfectly competitive firm is a price maker whereas the
monopolistic competitive firm is a price taker

9. Monopolistic market means _______________.

a. Any market which the demand curve is downward sloping
b. A standardized product being produced by many firms
c. A single firm producing a product for which there are no close
substitutes
d. A large number of firms producing differentiated products

10. Copyright and Patents_______________.

a. Give firms the exclusive right to produce or control a product
b. Discourage research and innovation
c. Are sources of monopoly
d. Are also called trademarks

11. Monopolistic competition means _________________.

a. A market situation where competition is based entirely on
product differentiation and advertising
b. A large number of firms producing a standardized or
homogeneous product
c. Many firms producing differentiated products
d. Few firms producing differentiated products

12. Monopolistic competition is characterized by _____________

a. Few dominant firms and low entry barriers
b. Large number of firms and substantial entry barriers
c. Large number of firms and low entry barriers
d. Few dominant firms and substantial entry barriers

13. Under a monopolistic competitive market, an entry to the industry is

_______.
a. Completely free of barriers
b. More difficult than perfect competition
c. More difficult than monopoly
d. Blocked

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14. Which of the following is NOT a basic characteristic of a monopolistic
competition?
a. The use of trademarks and brand names
b. Recognized mutual interdependence
c. Product differentiation
d. A relatively large number of sellers

15. The book publishing, furniture and clothing industries are

illustrations of _______________.
a. Countervailing power
b. Homogeneous oligopoly
c. Monopolistic
d. Pure monopoly

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