Market Structure

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Recommended: Compare and contrast the four market structures

There is a range of different market structures that exist in an economic system. The main characteristics of each market vary depending on the industry and the companies related to that industry. Under a mixed economy, it is important for a business to understand what sort of market structure it operates in, as customers are able to choose among a wide range of products, directly affecting price, demand and supply levels. The main different types of market are known as perfect competition, monopolistic competition, oligopoly and monopoly. PERFECT COMPETITION: This is a very important market structure, where there are a large number of firms, all of them fairly small compared to the size of the total market and it’s easy for new firms to join or leave the industry as the barriers are low. The perfect competition is a market where all firms produce a homogeneous product, in other words, the products are identical, and there is no advantage for existing firms, as every producer competes on equal terms. In the assumption of perfect competition, there are lots of buyers and sellers, an ample market knowledge and prices are determinate by supply and demand. Although it’s an unrealistic market structure, the closest example of perfect competition is the agricultural scenario. The price is set by the interaction of supply and demand, which is one of the implications of this kind of market. Firms in the perfect competition are said to be price takers, meaning that they must accept the price the market gives and make a decision about how much outputs to produce. However, in some societies we might find agriculture a poor example of perfect competition, as firms are getting bigger and bigger and agriculture business dominates the market, e... ... middle of paper ... ...for £2,40 cash single fare, and decided to supply one more unit. Therefore, the new supply number is 701; however the downward-sloping market demand curve suggests that the new price will be lower than before. In other words, TFL cannot distinguish its price, having to supply 701 buses for the same £2,40 cash single fares. On the other hand, TFL will gain more revenue from this additional bus, as more people will be able to use public transport instead of their car or bicycle. The marginal revenue that the monopolist receives from supplying 1 additional unit is equal to the price that it receives for this unit minus its loss in revenue from having to sell N units of output at a lower market price. Thus, the price the monopolist receives from selling N + 1 units exceeds the marginal revenue that it receives from supplying the additional unit of output. (CliffsNotes)

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