Distinguishing Market Structures
In a monopoly, there exists only one firm or seller (Colander, 2008, p. 261).In monopolistic competition, a large number of sellers sell differentiated products (Colander, 2008, p. 282).In oligopoly, a few large firms dominate the industry (Colander, 2008, p. 288). An oligopoly with only two sellers is called a duopoly. Critical Supply Shift FactorsCritical supply shift factors include changes in input prices, technology advances, variations in supplier expectations and taxes and subsidies (Colander, 2008, p. 90). Presence of short-run economic profits or losses also shift the industry supply curve till zero-economic profits are obtained in long-run (Colander, 2008, p. 251).Critical supply shift factors include changes in input prices, technology advances, variations in supplier expectations and taxes and subsidies (Colander, 2008, p. 90). Critical supply shift factors include changes in input prices, technology advances, variations in supplier expectations and taxes and subsidies (Colander, 2008, p. 90). Presence of short-run economic profits or losses also shift the industry supply curve till zero-economic profits are obtained in long-run (Colander, 2008, p. 284).Critical supply shift factors include changes in input prices, technology advances, variations in supplier expectations and taxes and subsidies (Colander, 2008, p. 90).
Critical Demand Shift FactorsThey include variations in number of buyers, consumer tastes and preferences, consumer income, expectations about prices, and prices of substitute and complementary goods, taxes on or subsidies to consumers (Colander, 2008, p. 83) . They include variations in number of buyers, consumer tastes and preferences, consumer income, expectations about prices, and prices of substitute and complementary goods, taxes on or subsidies to consumers (Colander, 2008, p. 83). A monopoly can have close substitues that influence the monopolists behavior.They include variations in number of buyers, consumer tastes and preferences, consumer income, expectations about prices, and prices of substitute and complementary goods, taxes on or subsidies to consumers (Colander, 2008, p. 83) . They include variations in number of buyers, consumer tastes and preferences, consumer income, expectations about prices, and prices of substitute and complementary goods, taxes on or subsidies to consumers (Colander, 2008, p. 83) .
Price Elasticity of DemandPrice elasticity of demand in the industry in perfectly elastic (Nordhaus, 2007, p. 168). Since buyers have complete information about product pricing, the slightest increase in price will lower quantity demanded to zero.Price elasticity of demand is finite. Price elasticity of a monopoly is relatively inelastic, in comparison to other market structures (Nordhaus, 2007, p. 168). Price elasticity of demand is finite and increases with rise in close substitutes (Nordhaus, 2007). Price elasticity of demand is finite. Oligopolies, with fewer market players and fewer substitutes, are usually more price inelastic than firms in monopolistic competition (Nordhaus, 2007).Barriers to EntryIn perfectly competitive markets, there are no barriers to entry (Colander, 2008, p. 238). New firms can freely enter the market and sell their product at the market determined price.A monopoly enjoys multifarious entry barriers which help sustain its market power. They include economies of scale, sunk costs, location, restricted ownership of raw materials and inputs and government restrictions, for instance, in the form of patents (Rittenberg, Tregarthen, 2010).In this industry, there are no significant barriers to entry facilitating easy entry of firms into the industry in long-run (Colander, 2008, p. 282)
There are significant oligopoly barriers to entry including government authorization, start-up costs and resource ownership (Rittenberg, Tregarthen, 2010).Pricing and Production Strategies These markets adopt marginal-cost and uniform pricing. Marginal-cost pricing implies that the firm sets its price equal to marginal cost. Uniform pricing connotes charging the same price for the same quantity of products from all customers. Any quantity can be sold at the market-price, however, profits are maximized at the quantity for which MCMR (Colander, 2008, p. 248). This is the quantity produced. Production proceeds with the motive of profit-maximization.A monopoly may opt for uniform pricing or price discrimination. For the latter to be feasible, the firm must be able to identify groups of consumers with different price elasticities (Colander, 2008, p. 269). It produces at the level of output for which MC MR and charges the price corresponding to this quantity on the demand curve (Colander, 2008, p. 265). P MC at this output. The goal is to maximize profits.Firms in the industry can opt for uniform pricing or price discrimination. The latter requires possibility of segregation of consumers into groups with varying price elasticities of demand (Colander, 2008, p. 269). At profit-maximizing output (where MC MR), MC Price (Colander, 2008, p. 285).
The firm produces with the aim of maximizing profit.Oligopoly firms use strategic pricing between monopoly and perfect competition. Price discrimination is possible if consumers can be segregated into groups with varying price elasticities of demand (Colander, 2008, p. 285). At profit-maximizing output (where MC MR), MC Price (Rittenberg, Tregarthen, 2010). The firm produces to maximize profit.Economic ProfitsPerfectly competitive industry may enjoy positive economic profits in the short-run. In the long-run, zero-entry barriers encourage entry of new firms into the industry till all economic profits are absorbed. Consequently, in the long-run, the industry can only have zero-economic profits (Colander, 2008, p. 251).A monopoly can enjoy positive economic profits in the short-run and long-run due to entry barriers which prevent other firms from absorbing monopoly profits (Colander, 2008, p. 266).Firms in monopolistic competition may enjoy positive economic profits in short-run. In the long-run, low entry barriers encourage entry of new firms into the industry till all economic profits are absorbed. Consequently, in the long-run, the industry can only have zero-economic profits (Colander, 2008, p. 284).An oligopoly firm can enjoy positive economic profits in the short-run and long-run due to entry barriers and collusions, overt or tacit (Rittenberg, Tregarthen, 2010).