12712_intro to market structures
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Selling Environment or MarketStructure
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Introduction
Market structure is the focus real-worldcompetition.
Market structure refers to the physicalcharacteristics of the market within whichfirms interact.
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Introduction
Market structure involves the number of firms in the market and the barriers to
entry.
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Market StructureThe selling environment in which a firmproduces and sells its product is called amarket structure .
Defined by three characteristics: The number of firms in the market The ease of entry and exit of firms The degree of product differentiation
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Introduction
Perfect competition, with an infinitenumber of firms, and monopoly, with a
single firm, are polar opposites.Monopolistic competition and oligopoly liebetween these two extremes.
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Perfect CompetitionP erfect Competition is a market structurecharacterized by: Many large firms, so large that no one firm has the
ability to affect the market. These firms are price
takers they have to go along with the market price. Identical products, the products are identical,generic products.
Easy entry into the industry. The demand curve is perceived by each firm to be
horizontal.
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Perfect Competition
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MonopolyMonopoly is a market structure in which thereis just one firm , and entry by other firms is not possible . There are no close substitutes. The firm has the power to set the price, but still sets
an optimal price to maximize profit. If the monopolistsets the price too high, revenue will decline.The firm is a price maker .
The firms demand curve is the market demand curve,and it is downward sloping.
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Monopoly
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Introduction
Monopolistic competition is a marketstructure in which there are many firmsselling differentiated products.
There are few barriers to entry.
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Monopolistic Competition
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Introduction
O ligopoly is a market structure in whichthere are a few interdependent firms.
There are often significant barriers to entry.
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O ligopoloyO ligopoly is characterized by: Few firms more than one, but few enough
so each firm alone can affect the market. Entry is more difficult, but can occur . The firms are interdependent each is
affected by what others do. The demand curve is downward sloping for
each firm.
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Demand for Various Markets
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Problems Determining Market
StructureDefining a market has problems: What is an industry and what is its geographic
market -- local, national, or international? What products are to be included in the
definition of an industry?
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Classifying Industries
O ne of the ways in which economistsclassify markets is by cross-priceelasticities. C ross-price elasticity measures the
responsiveness of the change in demand for a good to change in the price of a related
good.
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