Besario, Lorelyn Sharaim S.

Basic Microeconomics

Firms in Competitive Markets

What is a competitive market?

- A competitive market is one in which no single customer or producer holds market
power. Its response to supply and demand varies with the supply curve, which indicates a
product's amount. Because a competitive market necessitates a producer's willingness to
sell a product at the market price, supply curves adjust to keep the manufacturer's costs
compared to its sales.

What are 4 types of competitive market?

1. Oligopoly
2. Monopoly
3. Perfect competition
4. Monopolistic competition

Distinguish each of the competitive market in terms of 1) number of competitors 2) ease of entry
into the industry by new firms 3) similarity of products offered and 4) control over prices by
individual firms.

1. Oligopoly
- An oligopoly is when a small number of enterprise share a market resulting in a limited
level of competition. This market structure allows enterprises to maintain high pricing by
agreeing to limit the supply of their goods or services. We describe oligopolies in this
article, explain why businesses enter them, and provide some common examples.
Oligopoly is a market structure in which just a few enterprises in the same industry
collaborate to control supply and demand. Companies may work together to limit the
supply of their goods or services, thereby increasing demand. Because of the increased
demand, they may charge greater prices for their items.

2. Monopoly
- A monopoly occurs when one firm or seller controls the full market share for a product or
service. A monopolistic market occurs when a single seller controls the bulk of the
market. This means that clients have only one option for purchasing certain things.
Certain conditions prevent other merchants from entering the market, allowing the one
supplier to maintain a monopoly. When a monopoly market exists, it might be difficult
for a business to enter that industry. The corporation controls the majority of the market
and usually has the means or capabilities to buy competitors that attempt to enter the
market.

3. Perfect competition

Perfect competition is the ideal market system in which all producers and consumers have
complete and symmetric knowledge and there are no transaction costs. In this type of
ecosystem, there are many manufacturers and customers competing with one another. In this
type of ecosystem, there are many manufacturers and customers competing with one another.
There are many buyers and sellers in a highly competitive market. Small enterprises sell
products with minor differences in capabilities, features, and pricing. This ensures that
buyers cannot distinguish between products based on physical attributes such as size or color,
as well as intangible considerations such as branding. Many buyers and sellers ensures that
supply and demand in this market stay stable. As a result, customers can easily swap one
company's products for another.
4. Monopolistic competition
- Monopolistic competition describes a market state in which companies supplying
comparable items face intense competition. This competitive nature allows organizations
to create profit, but it requires innovation. Understanding this notion will help you
comprehend important components of microeconomics and how economic marketplaces
work. With monopolistic competition, no single firm has a complete monopoly over any
other in its market, and enterprises have only a limited amount of influence over the
prices they charge for their services. As a result, corporations can enter their market
rapidly when they think there is a high possibility of profit and exit swiftly when there is
a low likelihood of profit. Companies in these areas frequently profit in the short term but
may demand higher levels of innovation.