Question

Analyze and compare the four market structures with respect to their characteristics (perfect competition,oligopoly,monopolistic competition and monopoly).

illustrate with graphs

Answer 1

I am going to write the characteristic and define the four market structures based on the characteristics.

• Number of firms- Many number of firms in perfect competition (PC), only one in Monopoly, many in monopolistic competition (MC), a few in oligopoly
• Entry of firms- free entry in PC, any entry is restricted in Monopoly, free entry in MC, difficult to enter but not restricted in Oligopoly
• Nature of product - All firms sale same product in PC - No product differentiation, Product is unique with no close substitutes in Monopoly, Some product differntiation exists in MC, In oligopoly products may be same or slightly differentiated.
• Pricing power of firm - No pricing power, firms in PC are price takers, Monopoly power exists and thus firm is price setter in Monopoly, For MC, firms can be both price taker and setter - they generally they low levels of price setting powers, In oligopoly firms are price setters - prices are decided based on collective decision of frims like through unions or cartels.
• Nature of demand curve - Horizontal demand for PC as firms are price takers, Downward sloping demand curve for Monopoly which is generally inelastic in nature - however prices are set in the elastic region, For MC demand curve is downward slopping and highly elastic in the long run, In oligopoly, demand curve is downward slopping - the curve is kinked with one part elastic and other inelastic.