 Market

 Public place where the buyers and seller make

transactions directly or via intermediaries.
 May be confined to a specific geographical are like a
certain town where buyers and seller meet.
 When buyers wishing to exchange money for a good or
service are in contact with sellers wishing to exchange
goods and services for money.
 Pure or Perfect types
 Pure or perfect competition
 Pure or perfect monopoly
 Imperfect type
 Monopolistic competition
 oligopoly
 All firms sell an identical product.
 All firms are price takers.
 All firms have a relatively small market
share.
 Buyers know the nature of the product
being sold and the prices charged by each
firm.
 The industry is characterized by freedom
of entry and exit.
 Is the market structure characterized by only
one producer of a product.
 Example: Firms that supply electricity and water.
 The price is set by the sole seller or the
monopolist.
 There is no competing seller
 The buyer has no choice but to buy the
product of the monopolist.
 Is the type of market structure” where there are large
number of sellers that produce similar products, but the
products are perceived by buyers as different.
 The products of many sellers are identical and even
interchangeable like rice and tomatoes.
 The individual firms, however make it appear that their
products are different from one another.
 Can determine his own policies without regard of policies of
the competitor
 Products that are sold under condition of monopolistic
competition include wristwatches, milk, shoes, clothes and
fast food.
 Is the market structure in which there are a limited
number of firms competing for a given industry.
 The products of oligopolists are homogenous or
identical.
 Example of these products are gasoline, cement, steel,
automobiles and cigarettes.
 Firm that would want to compete in the oligopolistic
market are barred by high initial investment.
 When the oligopolist set his price, he must consider the
reaction of the other sellers.
 He cannot set a lower price and reap the benefit of
higher sales volume.
Market Model No. of Sellers Nature of Ease of Entry Control Over Degree of Non
Product the price Price
Competition
Pure Very large Homogenou Very easy No control None
Competition number s
Monopoly One Unique Very difficult Great control Optional

Monopolistic Many Differentiate Easy Limited Intense

Competition independent d control
sellers
Oligopoly Few homogenous difficult Moderate strong
control
 The price of the product in a pure competition cannot
influenced by any seller or buyer. Because the quantity held
by any individual seller is only a small fraction of the total
quantity produced, changing his price will not be a cause for
retaliation from competitors.
 In pure competition, the actual market price is determined
by a combination of the independent actions of the sellers
and buyers.
 No individual buyers or seller can set the market price, it is
the interaction between the total demand and total supply.
Price Quantity Demand
P100 infinite
200 Infinite
300 Infinite
400 Infinite
500 Infinite
600 0
700 0
800 0
900 0
1,000 0
 Demand curve is also the industry’s demand
curve.
 When he raises his prices, the quantity he
disposes will be reduced.
 When he lowers his price, the reverse
happens
Price per unit Quantity Sold
10 100 units
9 200
8 300
7 400
6 500
5 600
4 700
3 800
2 900
1 1000
 The monopolist will naturally seek the price and
quantity combination that will bring him the
greatest amount of profits.
 Three possible cost situations
 Constant cost
 Increasing costs
 Decreasing costs
 Constant cost behavior indicate that the per unit
cost of the monopolist remains unchanged even
if the quantity sold is increased or decreased.
Price per Qty Sold Total Cost per Total Cost Monopoly
unit Receipt unit profit
P1.00 900 P900 P0.75 P675 P225
2.00 800 1600 0.75 600 1,000
3.00 700 2100 0.75 525 1575
4.00 600 2400 0.75 450 1950
5.00 500 2500 0.75 375 2125
6.00 400 2400 0.75 300 2100
7.00 300 2100 0.75 225 1875
8.00 100 800 0.75 75 725
9.00 50 450 0.75 37.50 412.5
10.00 0 0 0.75 0 0
Price per Quantity Total Cost per Total Cost Monopoly
unit Sold Receipts unit profit
P10 0 0 P0.50 0 0
9 50 450 0.55 P27.50 P422.50
8 100 800 0.60 60 740
7 300 2100 0.65 195 1905
6 400 2400 0.70 280 2120
5 500 2500 0.75 375 2125
4 600 2400 0.80 480 1920
3 700 2100 0.85 595 1505
2 800 1600 0.90 720 880
1 900 900 0.95 855 45
 Table 19 shows an example of such
relationship. Maximum profits is realized
when price is set at P5.00 per unit. Lowering
his price will cause an increase in sales
volume, but it will not improve his profit.
Raising his profit will drive away buyers and
profit
 In setting the price of his products, the
oligopolist is faced with the following:
 If he cuts his price, competitors will retaliate and
he will not gain anything, but short term profits
from his initial move. His long run profits will be
reduced.
 If he raises his price, his customers will move to his
competitors. His sales volume and consequently
his sales revenue will decline.
 The firm in a monopolistic competition strive
to “differentiate” its products from that of its
competitors.
 If it is successful in maintaining a sizable
group of loyal customers, it will attempt to
maximize profits observing the law of supply
and demand.