MARKET STRUCTURE AND

PRICING PRACTICES
 Learning Outcome
• To discuss the perfect competition market in the real
world.
• To analyse the relevance of perfect competition market.
What is Market?????
It is a place of interaction between buyers and

sellers that facilitates exchange of goods and

services at mutually agreed upon prices.

Market Structure

Perfect Competition
Monopoly
Monopolistic
Competition
Oligopoly
 Market Structure

Competitive
Less
Perfect Competition
Monopolistic
Competitive

Competition
Oligopoly
More

Monopoly
 Perfect Competition
• Many buyers and sellers
• Buyers and sellers are price takers
• Product is homogeneous
• Economic agents have perfect knowledge
• AR=MR
• No entry barrier
• Perfect mobility of resources
• No selling cost
 Let’s Poll
What is the kind of elasticity of demand
in perfect competition?
a.Elastic
b.Inelastic
In perfect competition, the product of a single firm
A) is sold to different customers at different prices.
B) has many perfect complements produced by other firms.
C) has many perfect substitutes produced by other firms.
D) is sold under many differing brand names.
Time to answer
Is perfect competition actually exists?
Price Determination
© Oxford University Press, 2016. All
rights reserved.
Perfect Competition: Price
Determination
QD  625  5P QS  175  5P
QD  QS
625  5 P  175  5 P
450  10P

QD  625  5 P  625  5(45)  400

QS  175  5P  175  5(45)  400
Perfect Competition: Short-Run
Equilibrium

Firm’s Demand Curve = Market Price

= Marginal Revenue

Firm’s Supply Curve = Marginal Cost

where Marginal Cost > Average Variable Cost
 Perfect Competition: Long-Run
Equilibrium
Quantity is set by the firm so that short-run:

Price = Marginal Cost = Average Total Cost

At the same quantity, long-run:

Price = Marginal Cost = Average Cost

Economic Profit = 0
 Perfect Competition: Long-Run
Equilibrium
Quantity is set by the firm so that short-run:

Price = Marginal Cost = Average Total Cost

At the same quantity, long-run:

Price = Marginal Cost = Average Cost

Economic Profit = 0
Thank you