THE NATURE OF

INDUSTRY
 Overview:
• Market Structure
-Perfect Competition
-Monopolistic Competition
-Oligopoly
-Monopoly
• Firm Size
• Industry
 MARKET STRUCTURE

PERFECT COMPETITION MARKET STRUCTURE

In a perfectly competitive market, the forces of supply and demand determine

the amount of goods and services produced as well as market prices set by the
companies in the market.
Perfect competition assumes the environment or climate cooperates with the
buildings within it.

Buyers and sellers are referred to as price takers rather than price influencers. 
  Monopolistic Competition Market Structure

Companies in a monopolistic competition structure sell very similar products

with small differences they use as the basis of their marketing and advertising.
This is completely different from the perfectly competitive market structure
which excludes advertising. Consider bath soap — they are all pretty much the
same as far as what makes it soap and its use, but small differences like
fragrance, shape, added oils or color are used in advertising and in setting price.

In monopolistic competition producers are price maximizers.

 Monopoly Market Structure
Monopolies and perfectly competitive markets sit at either end of market
structure extremes. However, both minimize cost and maximize profit.
Where there are many competitors in a perfect competition, in monopolistic
markets there’s just one supplier.
High barriers to entry into this market leave a “mono-” or lone company
standing so there is no price competition.

The supplier is the price-maker, setting a price that maximizes profits.

 Oligopoly Market Structure
Not all companies aim to sit as the sole building in a city. Oligopolies have
companies that collude, or work together, to limit competition and
dominate a market or industry.  The companies in these market structures
can be large or small, however, the most powerful firms often have patents,
finance, physical resources and control over raw materials that create
barriers to entry for new firms.
Since this market structure discourages true competition, the producers are
able to set prices, but the market is price sensitive. If the prices are too
high, buyers will migrate to the market’s product substitutes.
 FIRM SIZE

Definitions of the Size of a Firm:

In an industry there are firms of varying sizes. The costs of production in these firms of
different sizes vary. Economists are concerned with the best size of a business unit, that is,
a firm in which the average cost of production per unit is the lowest.
But while taking decision about the size of a business unit or scale of operations often the
various terms such as the plant or the establishment, the firm and the industry are used in a
confused way. To have clear understanding of the concept of the size of a business unit it is
advisable to keep in mind the differences between these terms, i.e., the plant, the firm, and
the industry.
 Measures of Size:

In spite of the lack of preciseness the following standards are used to

measure the size of a firm:

1. Capital Invested
2. Value of the Product
3. The Number of Wage-earners Employed
4. Power Used
5. Amount of Raw Materials Consumed
6. Volume of Output
7.  Productive Capacity of the Plant
 INDUSTRY

What is an 'Industry‘

An industry is a group of companies that are related based on

their primary business activities. In modern economies, there are
dozens of industry classifications, which are typically grouped
into larger categories called sectors. Individual companies are
generally classified into an industry based on their largest
sources of revenue. 
 TYPES OF INDUSTRY
Primary Industries

Extract raw materials (which are natural

products) from the land or sea e.g. oil, iron ore,
timber, fish. Mining, quarrying, fishing, forestry,
and farming are all example of primary
industries.
 TYPES OF INDUSTRY

Secondary Industries (sometimes referred

to as Manufacturing industry)

Involve the manufacture of raw materials,

into another product by manual labor or
machines
 TYPES OF INDUSTRY
Tertiary Industries (sometime referred
to as Services industry)
 
Neither produces a raw material nor makes a product.
Instead they provide services to other people and industries.
Tertiary industries can include doctors, dentists, refuse
collection and banks.
 
 TYPES OF INDUSTRY
Quaternary Industries
Involve the use of high tech industries.
People who work for these companies are often
highly qualified within their field of work.
Research and development companies are the most
common types of businesses in this sector.