MARKET

STRUCTURE
&
LONG-RUN
EQUILIBRIUM
MARKET STRUCTURE

FOUR TYPES OF
MARKET STRUCTURE

PERFECT COMPETITION
LONG-RUN EQUILIBRIUM

MONOPOLY
LONG RUN EQUILIBRIUM

INDIFFERENCE PRINCIPLE
MARKET STRUCTURE
•Monopolistic Competition
•Perfect Competition
•Oligopoly
•Monopoly
PERFECT COMPETITION
A market structure where a large number of buyers and sell-
ers are present, and all engaged in buying and selling of the
homogeneous products at a single price prevailing in the
market.
MONOPOLY
• A market situation where there is only one seller or
producer supplying unique goods and services.
• Also known as monopsony.
• Most of public utilities supplying water, electric and
telephone services are monopolists.

Monopolist makes the price since he's only the supplier

MONOPOLY
OLIGOPOLY
• Is associated with a market situation where there are few
firms offering standardized or differentiated goods and
services.
• There is a price agreement among the producers to
promote their own economic interests.
• There is output agreement among oligopolist to avoid sur-
plus which caused decline in price.
OLIGOPOLY
MONOPOLISTIC COMPETITION
Under the Monopolistic Competition, there are large number
of firms that produce differentiated products that are similar,
but not identical and compete with each other on other fac-
tors besides price.
LONG-RUN EQUILIB-
RIUM
PERFECT COMPETI-
TION LONG-RUN EQUI-
LIBRIUM
DIAGRAM

Where
Long Run Marginal
Cost (Long Run MC)
= Short Run Marginal
Cost (SMC) =
Marginal Revenue
(MR)
In the long run, competitive
firms earn only an average
rate of return.
In the long-run, under perfect competition, entry and
exit are easy and free. As a result, all firms in the in-
dustry enjoy only normal profit. In the long run, free
entry and exit of firms ensure that abnormal profits or
losses will be wiped out completely
MONOPOLY
LONG-RUN EQUILIBRIUM
• Monopoly creates barriers to entry that prevents
other firms from entering the industry
• Even monopoly profits is driven to zero.
• In the very long run, the forces of entry and
imitation make the monopolistic demand more
elastic.

The elastic demand will push price down toward

marginal cost and will eventually drive economic
profit to zero.
If a monopoly firm is
in a position to
maintain its monopoly
status, it can earn
super normal profit in
the long period.
However, if there is
an effective threat of In the figure (16.6), the monopoly firm
the entry of potential is in equilibrium at point E where LMC
firms in, the industry, = MR and LMC cuts MR curve from
then the firm can earn below. QP is the equilibrium price and
just normal profit by OQ is the equilibrium output.
reducing the price.
INDIFFERENCE PRIN-
CIPLE
INDIFFERENCE PRINCPLE
• If an asset is mobile, then in the long run equilibrium, the
asset will be indifferent where it is used; that is, it will
make profit no matter where it goes.
INDIFFERENCE PRINCIPLE
• This principle was proposed by an American
economist Steven Landsburg.

• This refers to the proposition that unless people are

special in some way, nothing can make them happier
than the best next alternative. So when they have to
choose between two different choices, people prefer
one over another until a point when they turn
indifferent to both.
Thank you!