Market Structure

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Market Structure

Published by: Zaya

Published date: 16 Jun 2021

Market Structure Photo

Market Structure 

Perfect Competition

 The situation prevailing in a market in which buyers and sellers are so numerous and well informed that all elements of monopoly are absent and the market price of a commodity is beyond the control of individual buyers and sellers are said to be perfect competition.

Characteristics

  • Large numbers of sellers and buyers
  • Homogeneous products
  • Free entry and exit of firms
  • Price taker
  • AR and MR are constant
  • No selling cost

Perfect competition revenue schedule 

 Quantity Price Total Revenue Average revenue Marginal revenue
1 10 10 10 10
2 10 20 10 10
3 10 30 10 10
4 10 40 10 10
5 10 50 10 10
6 10 60 10 10

Market Structure || Production and Cost || Bcis Notes

In the figure, TR is the total revenue curve. It begins from the origin which shows that total revenue is zero when quantity sold is nil. It moves upwards which means that total revenue increases when the quantity sold increases. AR is the average revenue or demand curve. It is a horizontal straight line parallel to the x-axis which indicates that price remains constant even if the quantity sold increases.

Imperfect Competition

The situation prevailing in a market in which elements of monopoly allow individual producers or consumers to exercise some control over market prices is said to be imperfect competition.

Types: 

  1. Monopoly Market
  • Single sellers.
  • Price discrimination
  • No free entry and exit of firms/restriction
  • Price maker
  •  AR and MR are not constant i.e. different
  • Low selling cost
  • Incomplete information

2. Monopolistic Market

  • Many sellers and buyers
  • Product differentiation
  • Price maker
  • Relatively easy market entry
  • Large selling cost
  • AR and MR are different
  • Incomplete information

3. Oligopoly 

  • Few sellers
  • Act like monopoly
  • High dependency between firms
  • AR and MR are different
  • Low selling Cost
  • The entry of new firms is restricted

Imperfect Competition revenue schedule

Output Price Total Revenue Marginal revenue Average revenue
1 50 50 50 50
2 40 80 30 40
3 30 90 10 30
4 20 80 -10 20
5 10 50 -20 10

Market Structure || Production and Cost || Bcis Notes

We measure, MR/AR/TR on the y-axis and quantity on the x-axis respectively.

In the above figure, TR is the total revenue curve, which passes through the origin, implying that TR is zero when the quantity sold is zero. The average revenue (AR) and marginal revenue (MR) are the downward sloping straight line.