IGCSE ECONOMICS (0455)

TERM ONE(1)
YEAR 11
Mr. Emmanuel Commodore

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 TOPIC:
MARKET STRUCTURE
 OBJECTIVE(S):

By the end of the lesson the learner will be able

to:
1. Explore profit and revenue in more details,
focusing particularly on profit maximisation
Market Structure is the condition
which exists in a market.

Types Of Market Structure

1. Perfect competition
2. Monopoly
 Perfect competition is a market structure with the
highest level of competition. There are no barriers or
restrictions on the entry into and exit from the
market.
 Characteristics Of Perfect
Competition
1. There must be many buyers and sellers
2. There must be a low degree of market concentration
3. There must be free entry into and exit from the market
4. The product must be homogeneous(identical)
5. Buyers and sellers must be perfectly informed
 The Behaviour Of Perfectly Competitive Firms
An individual firm will not raise the price of its product, as it will
lose all of its sales to rival firms if it does. There is no incentive
for a firm to cut its price since at the market price it can sell any
quantity it wishes. As a result, firms are price takers.
In the short run a firm may make a supernormal or abnormal
profit.
In the long run a firm makes a normal profit.

Note: Normal profit is the minimal level of profit required to

keep a firm in the industry in the long run.
 Performance Of Perfectly Competitive Firms

Perfect competition may provide consumers with a

wider choice, responds more quickly to consumers’
demands, promote efficiency, keep prices low and
quality high.
Monopoly: A market with a single supplier
 Characteristics Of A Monopoly

1. The firm is the industry. It has 100% share of the

market
2. There are high barriers to entry and exit, making it
difficult for other firms to enter the market.
3. A monopoly is a price maker.
 Occurrence Of Monopolies
1. A monopoly can arise because one firm captures
the market
2. A monopoly can arise because one firm is formed
by mergers and takeovers
3. A monopoly can arise because the law protects a
firm’s monopolistic power.
 Why Do Monopolies Continue?
Monopolies continue because of barrier to entry and
exit.
Some barriers to entry include:
1. legal barriers
2. scale of operation
3. high set up costs
4. brand loyalty
5. monopolistic access to resources and retail outlets
 The Behaviour Of A Monopoly

A monopoly can earn supernormal profit(high profit)

in the long run because of the existence of barrier to
entry.
A monopoly can determine price or quantity it sells
but not both.
 The Performance Of A Monopoly

A monopoly may raise price, reduce quality and fail

to innovate. However, it is also possible that it may
produce at a low cost and hence charge a low price.
It may also innovate due to the availability of finance
and sense of security.