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What are the characteristics of each market structure?

Posted on April 17, 2014 at 12:45 AM

There are four types of market structures in microeconomics.

1. Perfect Competition: Hundreds of firms selling identical products; market determines price, firm is "price taker"; very easy to enter; allocative (price = marginal cost) and productive efficiency (price = minimum average total cost) in the long run; breaks even in long run; agriculture is a close example.

2. Monopolistic Competition: Many firms selling differentiated, but similar products; firm has some control over price; relatively easy to enter; breaks even in long run, but experiences excess capacity (average total costs can be lower by increasing output); clothing is a close example.

3. Oligopoly: A few powerful firms selling identical or differentiated products; firm has more control over price; can profit in long run; difficult to enter (significant barriers to entry); firms are interdependent; game theory is often used to show a firm's optimal decision and possible paypout; video game consoles are a close example.

4. Monopoly: One firm selling a unique product; firm is a "price maker"; highly inefficient; high barriers to entry; high long run profits; Utilities are a close example, although they are regulated.

AP Microeconomics Unit 2 Product Markets

Categories: AP Microeconomics, Micro Unit 2 Product Markets

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