Describe the four basic types of market structures. Although there are many diff

Question

Describe the four basic types of market structures. Although there are many different examples of economies in the world, all of them demonstrate one or more of the four basic types of market structure.

1) For this assignment, in your own words, Identify the four basic market structures, in order, from the best for consumers to the being the best for producers.

2) Describe each in terms of their distinguishing characteristics (e.g., monopolies have only one producer). Make certain you describe how the characteristic distinguishes the associated market structure from other market structures.

********ANSWER PROBLEM 2 ONLY***********

Explanation / Answer

The four types of market structure are - Perfect Competition, Monopoly, Monopolistic Competition and Oligopoly.

1. Perfect competition- It is the market structure in which there are large number of firms selling identical products, there are no restrictions on entry and exit of firms, firms are the price takers in the market, it is allocatively efficient as price is equal to marginal efficient.

2. Monopoly - It is the type of market structure in which there exists a single seller of the product with no close substitutes, there are barriers to entry due to patents, copyrights, trademarks, existence of natural monopolies, sole aim is profit maximization. They are not efficient as prices exceed Marginal cost and there is dead weight loss.Profits are above normal both in short and long run due to barriers to entry. Example - US Postal Services

3. Monopolistic Competition- There are large number of firms selling products that are close substitutes of each other. There is relatively free entry and exit as compared to monopoly and oligopoly but not as free as in the case of perfect competition. They are profit maximizers and there exists excess capacity and deadweight loss.Profits are normal in long run.

4. Oligopoly- In this case, the firms are interdependent and there are few firms in the market each having a significant share. It might be collusive or non collusive. There are different models for both. There exists barriers to entry as the incumbent firms may reduce prices below the average cost to prevent the entry of other firms. Example - Cartel of OPEC

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