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In: Economics

Market structure: perfect and imperfect competition (Chapters 5 and 6): different structures of market, long run...

Market structure: perfect and imperfect competition (Chapters 5 and 6): different structures of market, long run and short run equilibrium in different markets, their price, quantity and profit/loss (perfect competition, monopoly, oligopoly and monopolistically competitive market) and comparison of benefits to the consumers and producers from these different market structures.

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Expert Solution

There are four types of market structure that prevail in the market, named as perfect competition, monopolistic competition, oligopoly and  monopoly. Perfect competition is characterized by free entry and exit of firms that are price takers and sell homogeneous products. In comparison to it, monopolistic competition also has free entry and exit of the firms, but firms rely on product differentiation and set prices.  Oligopoly has few large firms with entry barrier and dependent upon each other. Here, the products are similar. In monopoly, there is one firm that sells the product and has entry barriers with no close substitutes.

In the short run, the perfectly competitive firm can earn positive economic profit, but in the long run these firms earn zero economic profit. The similar profit making assumption is applied in the monopolistic market also. in Oligopoly, firms can earn positive economic profit in the short run as well as in the long run. Though, a monopoly firm earn positive economic profit in the short run as well as in the long run.

In perfect competition, there is productive and allocative efficiency, so price is lowest and quantity produced is highest. But, other market shows inefficiency in the market and exhibit excess unused capacity. In oligopoly, firms can firm cartel or collude, to artificially fix the price and quantity.

Consumers benefit maximum in perfect competition as firms are price takers in the market, but in all other markets, producers benefit more than the consumers. Here, in perfect competition and monopolistic market, new firms can enter when other firms are making profit and vice versa. It makes these firms to earn zero economic profit in the long run. Though, monopoly firm earns maximum benefit using price discrimination as well.


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