Question

Compare and contrast the four market structures; perfect competition, monopolistic competition, oligopoly and monopoly.

Answer 1

Perfect competition :

Perfect competition is a type of market where almost equal prices prevail for homogeneous products excluding the cost of transport etc.In this type of market,the factors of demand and supply distribute the factors of production into the production of different goods freely..The revenue earned by factors also ditributed without any restriction.(a) In this market the level of competition is so high that no individual firm can influence the price determination ,there is large number of firms prroducing homogeneous goods,in this market there are seller and buyer in a very large number.therefore no individual person can affect the market price by producing less or through buying.(b) as all firm produce homogeneous goods there is no question of choice of a firm on the part of the customers.(c) in this market the firms have ree entry and exit .they can join and leave any time.there are no restriction to produce homogeneous goods like all other firm.(d) in this market generally the price get euilibrium when marginal cost is equal to marginal revenue.(e) in this market as the price of commodity goods is fixed every firm will try to reduce cost and increase profit through increase in efficeincy.(f) in this market buyers and sellers have full information regarding price of commodities,cost of production and other economic aspects so that if any seller tries to charge exorbitant price,he has to lose the market.

Monopolistic competition:

(a)Monopolistic competition is such a market in which there are many firms selling near substitute products.in the market we find the mixture of both competition and monoply. the firm has a control over its brand of production but it has to compete with other firms producing near substitute products.(b)In this market the firms have free movement.they can enter or exit at their will.therefore, in the short run they may get supernormal profit but in the long run only normal profit can be earned by the firm.(c) in this market as every producers makes near sustitute goods,the firm can introduce variety and product differentiation,it can convince the consumers that its product is better than those of others.In this the firm can increase its demand through selling cost.(d) in this market demand curve of the product of the firm is with negative slope and demand elastic.

Oligopoly:

The market in which there are a few producers is called oligopoly.There are limited firms producing homogeneous products.In this market there are limited number of firm producing near substitute goods.In oligopoly the firm are highly independent.as there are few producers the price or production of a firm affect the others,as a result the firm often change their price or production as a reaction.As the behavour of the rival firm is uncertain, it is difficult to draw the demand curve for oligoply market.

Monopoly :

Like Perfect competition,monopoly is also the extreme form of the structure of the market.(a) In momopoly as there is only one firm and no near substitute is available in the market,the monopoly has a control over the price,that is the reason why it can charge price ,(b) As there is no near sustitute for the products of the monopoly firm,the demand curve of the firm will have a negative slope.its will be demand in elastic.(c) as there is only one firm,other firms are not allowed to enter the prodution,this means that other firms are not allowed to enter the industry easily.In fact it has no rival.As the firms are not allowed to enter ,the firm can maintain the condition of high level of profit in the long run.