Module 2 (Market structure )

• Market structure can be defined as a set of characteristics which determine the behaviour of a firm within an industry
• Types of Market Structure:

  1. Perfectly Competitive
  2. Monopoly
  3. Oligopoly
  4. Monopolistic Competition
• Perfectly Competitive : there is immense competition amongst firms 


  Characteristics :

  1. Homogenous Products (similar or identical products)
  2. There are many buyers and sellers
  3. There are no barriers to entry or exit/ freedom of entry (no legal constraints)
  4. Firms are price takers and are determined based on the free market forces of demand and supply
• Monopoly: is a firm which has one supplier. The firm is usually large due to it being the sole supplier in the industry. There is zero competition as well as strict barriers to entry an exit.


  Characteristics:

  1. The firm has price making power (they can set the price)
  2. product differentiated ( no close substitutes)
  3. There is one sole supplier
  4. There are strict barriers to enter and exit
• Oligopoly: is where there is a small number of large firms


  Characteristics:

  1. Few sellers and many buyers
  2. strong barriers to entry
  3. Each firm may sell a differentiated product.
• Monopolistic : has some similarities with the PC and the monopoly 


  Characteristics:

  1. Many buyers and sellers
  2. There is product differentiation (branding)
  3. promotion advertising used to establish brand loyalty
  4. Some ability to set their own price
• normal profit: refers to the minimum profit that is neccesary to persuade a firm in producing a normal good.

  AR=AC.
• Supernormal?/ Positive economic profit/ Abnormal Profit: this is profit earned in excess of normal profit.

  AR>AC
• Subnormal profit: is less than normal profit

  AC>AR
• Total Revenue: refers to the amount of money or sales revenue that s firm receives from selling its good and services in the market.
• Average Revenue: can be defined as the amount of revenue or money earned for each unit of output which is sold by the firm in the market.
• Marginal Revenue: may be defined as the additional revenue which is earned by a firm selling an extra unit of output of a good or service.
• Formula:

  total revenue - Price of good x output
• Formula :

  TR/ Output
• Formula :

  Marginal revenue : change Tr/Change output