MARKET STRCTURES

MARKET
• Market is an arrangement whereby buyers
and sellers come in close contact with each
other directly or indirectly to sell or buy
goods.
• Not necessarily a fixed location
• Conditions & commercial relations
• Potential buyers & sellers
• Existence of different prices for a specific
commodity
 The Four Types of Market Structure
Number of Firms?

Many
firms
One Type of Products?
firm Few
firms Differentiated Identical
products products

Monopoly Oligopoly Monopolistic Perfect

Competition Competition
Profit maximisation conditions
π = TR(q) – TC(q)
 Profit maximization
1. MR= MC
2. MC curve slope is more than MR curve>>> MC
curve cuts MR from below
 Perfect Competition
The market structure where the competition among
buyers and the sellers prevails in its most perfect
form.
Features-
• Large number of sellers- price taker
• Large number of buyers- No influence on price
• Product homogeneity
• Free entry & exit of firms
• Perfect knowledge of market conditions
• Perfect mobility of factors of production
• No government intervention
• Absence of transport cost
 PRICE DETERMINATION UNDER
PERFECT COMPETITION
Equilibrium price- Price Total Total Pressure
Under perfect DD SS on price
competition there is a
20 1000 10000 ↓
single ruling market
price- equilibrium 19 3000 8000 ↓
price which is
determined by the 18 4000 6000 ↓
intersection of forces 17 5000 5000 Neutral
of total demand and 16 7000 4000 ↑
total supply.
15 10000 2000 ↑
Relationship between price & revenues
Output Price=AR TR MR
1 250 250 250
2 250 500 250
3 250 750 250
4 250 1000 250
5 250 1250 250
Firm: price taker
 Equilibrium Positions

The desirable level to attain, under given

conditions. A firm is in equilibrium when it
earns maximum profits or incurs minimum
losses.
At equilibrium, a firm has no tendency to
increase or decrease price.
 Equilibrium Positions

SHORT RUN EQUILIBRIUM

• Excess Profit
• Loss
LONG RUN EQUILIBRIUM
• Normal Profit
Short run equilibrium
• Can Stock market resemble perfect
competition?
• online market place? E-tailor v/s retailor- E-
bay
• Market for staple goods
• Imagine yourself as a street food vendor, selling
tacos topped with fried onions, ground meat, cheese,
fresh tomatoes and dollops of guacamole and spicy
sauce in the main plaza of a town close to the border
of Mexico. There are three other taco vendors on
other corners of the plaza selling the exact same
thing of the same quality. None of the other vendors
(nor you) can change the price, because everyone
knows that the deal is 3 tacos for $5. Anyone else
who wants to sell tacos on the street can do so, and if
you want to quit and sell something else one day (or
sell your tacos at one of the many other public spaces
in your town), no one is stopping you. A business
• Is perfect competition in a market realistic in the
real world? The answer is no, not really. There
aren't any 100% perfect markets, but there are
some industries that come close. Like we
mentioned earlier, street food vending (more
common in developing countries) has many of the
factors required of a perfect market. Agricultural
markets are examples of nearly perfect competition
as well. Imagine shopping at your local farmers'
market: there are numerous farmers, selling the
same fruits, vegetables and herbs. You can easily
find out the prices for the goods, but they are
usually all about the same.
•  Share and foreign exchange markets are
commonly said to be the most similar to the
perfect market. The real estate market is an
example of a very imperfect market.
• What will happen to the price of pizza when
YOU demand more pizza? What about
when you and your closest friends demand
more pizza? Explain what will happen and
why?
• Perfect Match
So is there something called perfect?