DEPARTMENT : ELECTRICAL (MORNING), 2 nd YEAR, CODE:-09 SUBJECT : ENGINEERING ECONOMICS AND MANAGEMENT TOPIC : TYPES OF MARKETS GROUP NAME : GROUP MEMBERS : AVCHAR RIDHAN

 PERFECT COMPETITION  MONOPOLY MARKET  MONOPOLISTIC MARKET  OLIGOPOLY MARKET

A Market situation in which a large number of sellers producing and selling homogeneous product. Perfect competition means all the buyers and sellers in the market are awer of price of product. Meaning of Perfect Competition Market

PERFECT COMPETITION  The concept of competition is used in two ways in economics.  Competition as a process is a rivalry among firms.  Competition as the perfectly competitive market structure.

A PERFECTLY COMPETITIVE MARKET  A perfectly competitive market must meet the following requirements.  Both buyers and sellers are price takers.  The number of firms is large.  There are no barriers to entry.  The firms products are identical.  There are complete information.  Firms are profit maximizer.

THE NECESSARY CONDITION FOR PERFECT COMPETITION 1. Both buyers and sellers are price takers.  A price takers is a firm or individual who takes the market price as given.  In most markets, households are price takers-they accept the price offered in stores.

2. The number of firms is large.  Large means that what one firm does has no bearing on what others firms do.  Any one firms output is minuscule when compared with the total market. 3. There is complete information.  Firms and consumers know all there is to knowledge about the market – products, prices,and available technology.  Any technology advancement would be instantly known to all in the market. The Necessary Condition For Perfect Competition

4.Firms are profit maximizers.  The goal of all firms in a perfectly market is profit and only profit.  Firms owners receive only profit as compensation, not salaries. 5. There are no barriers to entry.  Barriers to entry are social, political or economic impediments that prevent other firms from entering the market.  Barriers sometimes takes the form of patents granted to produce a certain good. The Necessary Condition For Perfect Competition

 One seller and large number of buyers.  No close substitutes for the product.  Monopolist is not the price taker  Monopolist is the price maker.

 Monopolist can control the supply.  No entry of new firms to the market.  Firms and industry are the same.

 Legal restrictions.  Exclusive ownership or control over the raw material.  Economies of large scale production.  Exclusive knowledge of a production technique.

 Monopolies exist because of barriers to entry into a market that prevent competition. Barriers to entry include legal barriers sociological barriers natural barriers.

Chapter 10Slide 18  Monopoly pricing compared to perfect competition pricing:  Monopoly P > MC  Perfect Competition P = MC

Chapter 10Slide 19  The monopolist is the supply-side of the market and has complete control over the amount offered for sale.  Profits will be maximized at the level of output where marginal revenue equals marginal cost.

Chapter 10Slide 20  Measuring Monopoly Power  In perfect competition: P = MR = MC  Monopoly power: P > MC

3.Multiple dimensions of competition make it harder to analyze a specific industry, but these methods of competition follow the same two decision rules as price competition 2.Product differentiation where the goods that are sold aren’t homogenous 1.Many sellers that do not take into account rivals’ reactions 4.Ease of entry of new firms in the long run because there are no significant barriers to entry 16-24

Like a monopoly, At profit maximizing output, marginal cost will be less than price Marginal revenue is below price Like a perfect competitor, zero economic profits exist in the long run The monopolistic competitive firm has some monopoly power so the firm faces a downward sloping demand curve 16-25

 Product differentiation implies that the products are different enough that the producing firms exercise a “mini-monopoly” over their product.  The firms compete more on product differentiation than on price.  Entering firms produce close substitutes, not an identical or standardized product.

 When there are many sellers, they do not take into account rivals’ reactions.  The existence of many sellers makes collusion difficult.  Monopolistically competitive firms act independently.

 Differentiation exists so long as advertising convinces buyers that it exists. Firms will continue to advertise as long as the marginal benefits of advertising exceed its marginal costs.

 One dimension of competition is product differentiation.  Another is competing on perceived quality.  Competitive advertising is another.  Others include service and distribution outlets.

 It is possible for the monopolist to make economic profit in the long-run.  No long-run economic profit is possible in monopolistic competition.

Outcome: Monopolistic competition output is lower and price is higher than perfect competition In monopolistic competition in the long run, P > min ATC, In perfect competition in the long run, P = min ATC Q P ATC Q MC MC D MC MR MC P MC P PC D PC Q PC 16-32

 The firms are interdependent in decision making.  Advertising should be effective.  Firms should have group behaviour.  Indeterminateness of demand curve.

 The number of firms are very small.  Product are identical or close substitutes to each other.  There is an element of monopoly.

 Dominant price leadership  Barometric price leadership  Aggressive price leadership  Effective price leadership

Dominant price leadership:  There exist many small firms & one large firm & the large firm fixes the price & the small firms in the market accept that price. Barometric price leadership:  One reputed & experienced firm fixes the price & others may follow it.

Aggressive price leadership:  One dominating firm fixes the price & they compel all others in the industry to follow the price. Effective price leadership:  There are small no of firms in the industry.

 A cartel model of oligopoly is a model that assumes that oligopolies act as if they were a monopoly and set a price to maximize profit.  Output quotas are assigned to individual member firms so that total output is consistent with joint profit maximization.

If oligopolies can limit the entry of other firms, they can increase profits