Question 1 Define and explain, “market structure.” Explain the impact of the number of firms in...

Question 1

Define and explain, “market structure.”

Explain the impact of the number of firms in an industry on market outcomes and performance.

Define and explain the terms, “price maker” and “price taker.” Give an example of each type of firm.

Why are competitive industries considered, “efficient?”

Give an example of a perfectly competitive firm, and explain why it meets the definition of perfect competition.

Solutions

Expert Solution

Thus, the market structure can be defined as, the number of firms producing the identical goods and services in the market and whose structure is determined on the basis of the competition prevailing in that market. The Market Structure refers to the characteristics of the market either organizational or competitive, that describes the nature of competition and the pricing policy followed in the market.

number of firms in the market determine the type of structure of the market and the performance of the market. if there are innumerous number of firms the market is perfectly competitive, if 1 then its a monopoly and if 2 its duopoly. thus the number of firms in the market is one of the major criteria to categorise and know about the market structure.

PRICE TAKER: when the market works according to the demand and supply schedule, the price is decided by no individual but the market itself. there is no control of anyone over the price in such a market.

PRICE MAKER: when market works according to one firm or a single seller, he has the power to decide the price of the good. since he is the only seller he can sell it at any price he want and hence he is the price maker.

competitive markets are considered efficient because there everyone is the price taker, the market works acc to demand and supply and thus there is efficient outcome. the price is such that everyone is willing to buy and sell at it.

perfect competition CHARACTERSTICS

1. n number of firms and n number of buyers

2. complete info to both the parties

3. free entry and exit

4. homogeneous products

5. everyone is the price taker

6. no single firm possesses the power to control the market

EG: suppose there are 1000 photocopy shops in a city. they all will charge same market price.

Rahul Sunny answered 1 year ago

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