Describe the 4 Main Market Structures Essay

1108 Words May 22nd, 2016 5 Pages
Perfect competition is “a market structure where competition is at its greatest possible level” (The Economic Times, 2016). In this market, entry and exit is very easy and also free as there are many firms, both sellers and buyers who all produce homogenous items. Firms are price takers because they cannot control the price of their products, as they are determined by the interaction of demand and supply in the entire market. Another characteristic in this market is that the producers and the consumers have total awareness of products including prices as well as the costs of the market, quantity and availability (Sloman, Hinde and Garratt, 2013), hence the mobility of the factors of production is perfect in the long run in this market. …show more content…
As figure 1 shows, due to the firm being a price taker, the demand curve for the single firm is a horizontal line which is equal to the equilibrium price of the entire market. This shows the elasticity of demand is perfectly elastic meaning should a single firm decide to increase price, it will lose customers as they prefer to buy cheaper products in a perfect competition. “A monopoly offers no benefits to the consumer”, (Davis 2014) the producer however benefits more from monopolies because they charge higher prices than the MC hence make more profit and are able to achieve economies of scale hence they can be contracted to produce more and earn more profits. The demand and average revenue curve for monopoly is flexible as it will be dependent on whether or not they charge higher or lower prices. This is because with a change in price, the demand also changes hence why the curve is downward sloping as seen from figure 2 this therefore leads to a producer surplus and an example is Monsanto which owns 80% of the seed market in America (Davis

Related Documents