SHIKSHAPEETH COLLEGE OF MANAGEMENT

& TECHNOLOGY
ADDITIONAL KNOWLEDGE MATERIAL

COURSE :MBA (1st SEMESTER)

UNIVERSITY : PONDICHERRY UNIVERSITY(DDU)

SUBJECT :MANAGERIALS ECONOMICS

SUBJECT CODE : MBAC1002

UNIT – 3
 TOPICS COVERED

•Different types of market

•Defining different types of market
•Features of different types of market
•Pricing under different market structure
•Price discrimination
•Degrees of price discrimination
 Different Types Of Markets

1. Perfect competition
2. Monopoly
3. Monopolistic competition
4. Oligopoly
5. Duopoly
 Defining Different Types Of Market

• Perfect Competition
Perfect competition is a market structure where there is
complete absence of rivalry among individual firms such that
every single firm charges a uniform price.

• Monopoly
Monopoly is a market structure in which there is a single firm
producing all the output in a particular market and there are
barriers to entry such that single firm known as the
“Monopolist” produces entire industry’s output.
 
 
•  Monopolistic competition
Monopolistic competition is a market structure which has the
features of both Monopoly and Perfect competition. It is a
market where many firms are selling closely related but not
identical commodities.

• Oligopoly
Oligo means few and poly means sellers. So oligopoly means
few sellers. Oligopoly is a market structure in which there are
few firms selling homogenous (same) or differentiated
commodities.

• Duopoly
Duo means two and poly means sellers. So duopoly means a
market where there are just two sellers serving the entire
market.
 Features Of Perfect Competition
• Large Number of buyers and sellers
There are so many buyers and sellers such that no individual buyer or seller can influence the
price of the commodity. Here, firm is the “price taker” and industry is the “price maker”. This
means that firm accepts the price decided by the industry and can sell any amount of output at
the given price.
 
• Homogenous Product
Firms in perfect competition produces homogenous commodities which means that
commodities are identical in every respect and therefore the buyers are indifferent between
suppliers.
 
• Perfect Knowledge
All buyers and sellers have complete knowledge of the market conditions. Information is free
and costless. There is no uncertainty and insecurity in the market.
 
• Freedom Of Entry And Exit Of Firm From the industry
In perfect competition market, there are no barriers to entry and exit of firms i.e. firms have
freedom to move in and out of the industry. This means that in the long run, all firms will be
earning “normal profits”.

• Absence of transport cost

 Features Of Monopoly
• A Single firm
A monopolist is the only producer of the good. And being a single seller, firm is industry
itself.
 
• No close substitutes
There are no close substitutes for the commodities produced by the monopolist. He is the price
maker and produces all the output in a particular market.
 
• Barriers to entry
Entry is blocked in monopoly market. There are barriers to entry i.e. obstacles that make it
difficult for a firm to enter a given market. Barriers can be natural and artificial like
copyright, patent etc.
 
• Goal is profit maximization
The monopolist aims to have maximum profit and produces such that MR=MC
 
• Perfect knowledge
Monopolist is assumed to be aware about all the market conditions. There are no uncertainty
and risk factor involved.
Features Of Monopolistic Competition
• Large number of buyers and sellers
The buyers and sellers are large in numbers but comparatively less than that in perfect competition market.
 
• Product differentiation
The products sold under monopolistic competition are similar but not identical. Products are differentiated
and therefore they are close substitute of each other. Product can be differentiated in terms of size, color,
packaging, quality etc.
 
• Free entry and exit of firms
The firms are free to enter or exit from the group just like the case of perfect competition. In case of
supernormal profits, there would be entry of new firms and in case of losses, there would exit of inefficient
firms.
 
• Imperfect knowledge
Buyers and sellers do not have perfect knowledge of market conditions. Buyers are influenced by
advertisement and selling activities of sellers.

• Selling cost
A firm under monopolistic competition incurs selling cost which is the cost of advertisement that a firm
does to promote its product. Selling cost is the most important feature of monopolistic competition.
 Features Of Oligopoly
• Large Number of Buyers and Few Seller • Advertisement and Selling Cost
This is most unique feature of oligopoly  
that there are large number of buyers but
very few sellers exist in the market. • Market Power
 
• Differentiated and Multiple Products • Conditional Price Rigidity
In an oligopoly market, firms produce  
differentiated products. Products of one
firm are different from the product of • Close Competition
others. Example: automobile industry.  
• Barriers to Entry
• Interdependence
In oligopolistic firms, the decisions of one
firm are influences by the decisions of the • Absence of uniformity
other firms. Firms always observe the
actions of rivals before deciding prices and
output.
 Pricing Under Perfect Competition
• Demand and supply curves are used to analyse the
equilibrium market price and quantity.
 If quantity demanded is equal to quantity supplied at
a particular price then the market is in equilibrium
 If quantity demanded is more than quantity supplied
at a particular price then there is market price will
rise.
 If quantity demanded is less than quantity supplied at
a particular price then there is market price will fall.
Equilibrium of firm under Perfect Competition

• Short run equilibrium

In perfect competition, short run equilibrium condition is
where MR=MC and MC cuts MR from below.
 
There are 4 cases under this:
 
Case 1: Supernormal profit
Case 2 : Break even point
Case 3: Total loss minimised
Case 4: Shut down
 
Case 1: Supernormal profit
In case of supernormal profit, AC curve is drawn below the AR curve such that
Total Revenue is more than Total Cost.

Case2: Breakeven Point

A firm break even when TR=TC or AR=AC i.e. a firm is earning zero economic
profit.

Case3: Total loss minimized

• This situation occurs when the price is so low that it does not fully cover the AFC.
• The market price is less than the AC and firm incurs losses.
• The firm still continues to produce at this price in order to minimize the losses.

Case4: Shutdown Point

• It is the point where P=AVC or AR=AVC and losses are equal to TFC.
• Shut down is a situation when the price is so low that it cannot cover the fixed costs
at all. The revenue just covers the variable costs.
Equilibrium of the firm under Monopoly

• Equilibrium condition under monopoly is same

that MR=MC and MC must cut MR from below.
• But it is to be noted that AR curve is not equal
to MR now.
• AR curve is downward sloping in monopoly and
MR curve is also downward sloping and it lies
below the AR curve. Therefore, the price is
more than MR here.
 Monopoly
There are 3 cases under this:
 
Case 1: Supernormal profit
Case 2 : Break even point
Case 3: Total loss minimised
 Price Discrimination
• Price discrimination is a situation where a monopolist charges
different prices for same commodities from different consumer.
• The condition of equilibrium under discriminating monopoly is
same as that under pure monopoly i.e. MR=MC.
• But as the monopolist sells in different markets with different
demand curves, we need to aggregate the corresponding MR
curves.
• Hence, the condition now becomes Summation MR=MC
• MR curves are added horizontally at a given price and aggregate
MR is equated with MC to calculate equilibrium quantity.
 Degrees of Price Discrimination
1. First Degree Price Discrimination
It is also known as Perfect Price
Discrimination
It occurs when a firm charges a different price
for every unit consumed.
entire consumer surplus is extracted by the
seller.
2. Second Degree Price Discrimination
It means charging different price for different quantities
such as quantity discount for bulk purchase.

3. Third Degree Price Discrimination

It means charging a different price for different
consumer group. Here the market is divided in two or
segments and different price is charged in each market.
Eg. Electricity prices are peak prices and off peak prices.
THANK YOU