MARKET MORPHOLOGY

WHAT ALL IS THERE IN A MARKET ?

POSSIBILITIES


Perfect Competition Monopolistic Competition Oligopoly Monopoly

Features of Perfect Competition

      

Very large number of sellers Very large number of buyers Homogeneous product No barrier to entry or exit Complete knowledge No interference by government No transport cost/ No selling cost

Price and output determination in SR



All firms are price-takers; not price makers Price is determined in the industry by market forces Firms follow marginal equivalency rule Firms can earn abnormal, normal profit or incur loss

Price and output determination LR



In long run; firms have freedom of entry and exit. Hence , no possibility of abnormal profit or loss; only one possibility i.e. NORMAL PROFIT P = AR = MR = AC = MC

OPTIMUM OUTPUT Vs. EQUILIBRIUM OUTPUT



 

A firms optimum output is that output where its per unit cost is the lowest. Such firm is called technically efficient. A firms equilibrium output is that output where it maximizes profit. Such firm is called economically efficient In PC in LR, optimum Q = equm. Q PC ensures best utilization of resources

MONOPOLISTIC COMPETITION


   

Large number of sellers; large number of buyers Product differentiation Freedom of entry and exit Selling cost Excess capacity

Price and Output determination

In Short Run what are possibilities ? In long run - what happens?

SELLING COSTS


Total cost = Production cost + Selling cost How much should a firm spend on advertisement? Why is selling cost considered a waste of monopolistic competition?

MONOPOLY
    

One seller; many buyers Unique product No freedom of entry and exit Firm is the industry Monopolist is a price-maker in a limited sense AR and MR curves are downward sloping P = AR > MR

HOW ARE MONOPOLIES FORMED?

Possible reasons


Government action Control over vital raw material Unique technology Driving competitors out by efficiency

Price and output determination in simple monopoly



In short run, a monopolist may earn abnormal profit, or normal profit or incur loss; but in reality, the most likely case would be that a monopolist earns abnormal profit. In long run, a monopolist always earns abnormal profit.

Comparing monopoly with perfect competition

Given same costs, a monopolist will charge a higher price than a perfectly competitive firm; and sell a smaller output than perfectly competitive firm
 

Pm > Pc Qm < Qc

OLIGOPOLY


  

Few discernable sellers; many buyers Homogeneous or heterogeneous product Restricted entry/exit Interdependence Indeterminate Solution

OLIGOPOLY MODELS

COLLUSIVE

NON- COLLUSIVE

COLLUSIVE MODELS
 CARTELS

 PRICE

LEADERSHIP

NON COLLUSIVE MODELS

 PRICE

RIGIDITY MODEL MODEL MODEL

 COURNOT

 CHAMBERLIN

Market No. of sellers

Entry barrier to sellers None Huge None

Nature of product Homogeneous Unique Differentiated

Perfect Many, small, competition independent Monopoly

Monopolistic competition

One Many; virtually independent

Oligopoly

Few; Substantial interdependent

Either

EXAMPLES
PC MC Oligopoly Monopoly

1. Agrigoods 2. Street food

1. Ready- 1. Automobile 1. Windows made 2. Soft drinks operating knitwear system 2. Pens 2. Public utilities 3. Soap