Managerial

Economics
Submitted By:
John Stephen Eusebio
BSA – A2 1:00-4:00 pm Rm.42
October 28, 2019

Submitted To:
Mr. Remigio Tiambeng
 PROFIT MAXIMIZATION IN VARIOUS MARKET
STRUCTURE

Market Structure - An organization of market attributes/characteristics in an

economy

Market - A condition where buyers and sellers are exchanging goods and
services

Two Types of Market Structures

Perfect or pure market

Imperfect market

Perfect Market
 Competition exists
 Consists of a very large number of buyers and sellers offering a homogeneous
product

Characteristics of perfect competition

o A large number of sellers
o Selling a homogeneous product
o No artificial restrictions placed upon price or quantity
o Easy entry and exit
o All buyers and sellers have perfect knowledge of market conditions
o Firms are “price takers”

Imperfect Market
 Competition doesn’t exist
 Few sellers which are enough to affect the market price

Imperfect competition
 Happens when the firm becomes relatively larger in connection with market size

 MONOPOLY - Came from the Greek Words “monos” which means “one” and “polein”
means “to sell”

 There is only one seller of goods and services

 Extreme difficulty in entering the market

 There is lack of viable substitute for the goods and services that they provide

 Monopolist are “price makers”

Natural Monopoly - Natural monopolies exist where fixed costs and/or startup
costs are extremely high. They may also arise in industries where unique raw
materials and/or technology are required.

Legal Monopoly - A legal monopoly is a firm that is protected by law from

competitors. In other words, a legal monopoly is a firm that receives a
government mandate to operate as a monopoly.

Coercive Monopoly - A form of monopoly whose existence as the sole producer

and distributor of goods and services is by means of coercion (legal or illegal), so
that most of the time, it violates the principles of free market just to avoid the
competition.

Short-run Analysis of Monopoly

MARGINAL REVENUE

Change in Total Revenue

=
Change in Output

MARGINAL COST

Change in Total Cost

=
Change in Output

AVERAGE TOTAL COST

Total Cost

=
Total Output
 Short-run Analysis of Monopoly

OLIGOPOLY - Came from the Greek Words oligo which means “few” and polein
which means “to sell.”

 There is a few number of sellers, each aware of the actions of others

 Extreme difficulty for new competitors to enter the market

 Oligopolists are “price makers”

 Conjectural interdependence is present, that is, decision of one firm influences

and are influenced by the decision of other firms in the market

Types of Oligopoly

Pure Oligopoly

 Those few sellers that produce identical products

 Common in a market situation where the products sold are fairly homogeneous

Differentiated Oligopoly

 Value characteristics or qualities of goods vary

Duopoly
 A situation in which two suppliers dominate the market for a commodity or
service

 Cartel

 A formal agreement among oligopolists to set up a monopoly price, allocate

output, and share profit among members

  

 Example: The Organization Of Petroleum Exporting Countries (OPEC)

 s an intergovernmental organization for 12 developing countries and its main

objective is to coordinate and unify petroleum policies among member countries
in order to secure fair and stable prices for petroleum producers

Collusion

 Formal or an informal agreement among oligopolists to adopt policies that will

restrict or reduce the level of competition in the market. It occurs when rival firms
agree to work together

MONOPOLISTIC COMPETITION

 A market situation in which there are many sellers producing highly differentiated
products

 Has similar characteristics with perfect competition but in addition to Product

Differentiation.
PRODUCT DIFFERENTIATION

 The process of distinguishing a product/service from others to make it more

appealing to a specific target market

o Features

o Warranty

o Durability

o Performance

MONOPSONY

 A market situation where there is one buyer of goods/services in the market

 Buyers can control seller’s unit cost for an input which is similar to the way the
monopoly controls its price

OLIGOPSONY

 A market situation where there is a small number of buyers

 Firms are buyers; not sellers.