Market Structures

Question 1

The 5 types of market structures

Answer 1

Perfect Competition
Monopoly
Monopolistic Competition
Oligopoly
Monopsony

Question 2

Perfect Competition

Answer 2

A market with lots of buyers and sellers
(e.g Agricultural markets)
No barriers to entry and exit
Homogenous products
Perfect information

Question 3

Perfect Competition Diagram

Answer 3

Firms are Price Takers meaning they take the market price and sell their goods at that price

In the Short-run, Supernormal profit can be made
In the Long-run, only normal profit can be made

Question 4

Monopoly

Answer 4

When there is one dominant firm in the market

Question 5

Pure Monopoly

Answer 5

When one firm has 100% market share

In reality these are rare
Closest is NHS with 90%

Question 6

Legal Monopoly

Answer 6

When a firm has over 25% market share

e.g Tesco with 29%

Question 7

Monopoly Assumptions

Answer 7

We assume Monopolies are:
Pure Monopolies
High barriers to entry and exit
Profit Maximisers

Question 8

Monopoly Diagram

Answer 8

They are Price Makers so they supply at a profit maximising quantity where MC=MR

Question 9

Monopolistic Competition

Answer 9

A market where there are many buyers and sellers, low barriers to entry and exit and differentiated products

e.g. the takeaway market

Question 10

Monopolistic Competition Diagram

Answer 10

In the short-run, a Monopolistic Competition diagram looks the same as a Monopoly diagram
In the long-run, as more firms enter the market, normal profit is made, as AC touches AR

Question 11

Oligopoly

Answer 11

Market dominated by a few large sellers, high barriers to entry and exit, differentiated goods and interdependence

Question 12

Oligopoly Diagram

Answer 12

Kinked Demand Curve

Oligopolies have a unique market structure which impacts how they set prices

In other markets, changes in costs mean a change in price and reduction in quantity. But for oligopolies, changes in costs change price but not quantity.

Question 13

Monopsony

Answer 13

When there is only one dominant buyer in the market

e.g NHS

Question 14

Monopsony Diagram

Answer 14

The Supply curve tells us what wage firms have to pay to get a certain amount of people to work for them

Monopsonies need to profit maximise where marginal cost of labour equals marginal revenue product of labour

It uses market power to pay low wages