MARKET STRUCTURE :

1. Perfect competition
2. Pure Monopoly
3. Monopolistic competition
4. Oligopoly
o The Effect of Sellers’ Characteristics on Market Structure
The nature and degree of competition is influenced by the bumber and
size of the firms operating in the market in relation to the size of the
market.
The Effect of Buyer Characteristics on Market Structure
The nature and degree of competition is also influenced number and size
of the buyers in the market.
The Effect of Product Charactersitic on Market Structure
The most important characteristic of a firm’s product is the degree
to which the product is differentiated from all others in the same market.
Conditions of Entry and Exit
Economic theory holds that profitability within a particular market will
attract the entry of new firms, and lack of profitability (losses) will drive
weaker firm out.
Factor that may barier market entry include the following :
1. Cost of developing a differentiated product plus promotional costs
necessary to penetrate the market.
2. Demand condition, especially price elasticity
3. Control by existing firms over the supply of the factors of production.
4. Control by existing firms over channels of distribution.
5. Legal and institutional factors, such as patents and franchises.
6. Potential economies of scale.
7. Capital requirements.
9. Technological factors.
Economy of Scale
Possible economies of scale in production provide
the best explanation of why there are large firms
in some industries, but not in others.
PERFECT COMPETITION

1. Many small sellers of a homogeneous or

standard product.
2. Many small buyers.
3. Free entry
4. Free mobility of economic resources.
5. Perfect information
6. The firm is a price taker and quantity adjuster.
SHORT-RUN EQUILIBRIUM

Graffic Illustration

Algebratic example :
Suppose we let price P=$10
And assume the cost function
TC = 4 + 4Q + Q2

ILLUSTRATION PERFECT COMPETITION

GRAFFIC

IN GLOBAL MARKET
PURE MONOPOLY
Charateristic of pure monopoly are :
1. One seller.
2. No close substitute
3. No entry alowed
The most common barriers to entry are :
4. Legal or institutional factors, such as patent or franchises
5. Economies of scale that require very large capital outlays.
6. The monopolist’s control of input supplies
7. Demand conditions, such as the market’s inability to absorb
additional production.
8. Technology controlled by the monopolist.
MONOPLIST’S SHORT-RUN OUTPUT AND PRICING DECISION

Graffic Illustration.
To illustrate the monopolist’s output and pricing
decision, suppose a monopolist is faced with
demand and cost function as follows :
Q = 2,000 – 5P
TC = 100 + 4Q + 0.4Q2
MONOPOLISTIC COMPETITION
Chamberlin’s model pictures an industry with four distinguishing
cahracteristic :
1. There are a very large number of small firms offering slihgtly entiated
products in a market in which barriers to entry are very low.
2. The market consists of firms that produce similar product that are close
substitutes for one another. The substutitability of these products provides
the element of competition in monopolistic competition.
3. Because of product differentiation, each firm posses a monopoly over its
own version of the general product. Therefore, each firm may set its own
price, but within limits imposed by competition. Product differentiation
thus provides the element of monopoly in monopolistic competition.
4. Some barriers to entry do exist so that entry is not completely free.
Nevertheless, entry is realtively easy.