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Market structure In economics, market structure is the number of firms producing identical products which are homogeneous.

The types of market structures include the following: Monopolistic competition, also called competitive market, where there is a large number of firms, each having a small proportion of the market share and slightly differentiated products. Oligopoly, in which a market is by a small number of firms that together control the majority of the market share. Duopoly, a special case of an oligopoly with two firms. Monopsony, when there is only one buyer in a market. Oligopsony, a market where many sellers can be present but meet only a few buyers. Monopoly, where there is only one provider of a product or service. Natural monopoly, a monopoly in which economies of scale cause efficiency to increase continuously with the size of the firm. A firm is a natural monopoly if it is able to serve the entire market demand at a lower cost than any combination of two or more smaller, more specialized firms. Perfect competition, a theoretical market structure that features no barriers to entry, an unlimited number of producers and consumers, and a perfectly elastic demand curve. The imperfectly competitive structure is quite identical to the realistic market conditions where some monopolistic competitors, monopolists, oligopolists, and duopolists exist and dominate the market conditions. The elements of Market Structure include the number and size distribution of firms, entry conditions, and the extent of differentiation. These somewhat abstract concerns tend to determine some but not all details of a specific concrete market system where buyers and sellers actually meet and commit to trade. Competition is useful because it reveals actual customer demand and induces the seller (operator) to provide service quality levels and price levels that buyers (customers) want, typically subject to the sellers financial need to cover its costs. In other words, competition can align the sellers interests with the buyers interests and can cause the seller to reveal his true costs and other private information. In the absence of perfect competition, three basic approaches can be adopted to deal with problems related to the control of market power and an asymmetry between the government and the operator with respect to objectives and information: (a) subjecting the operator to competitive pressures, (b) gathering information on the operator and the market, and (c) applying incentive regulation.[1] Market Structure Perfect Competition Monopolistic competition Oligopoly Oligopsony Monopoly Monopsony Perfect or Pure Competition In the perfect or pure competition market, there are a large number of firms each producing the same product (as called a standardized or homogeneous product). Since the number of firms is very large, no one firm can influence the market price, thus each firm has no market power and each is a price taker. We also assume that there is perfect information, meaning everyone knows what price is being charged in all markets. The barriers to entry are low, so it is easy for other firms to get into or out of the market. pure monopoly A market in which one company has control over the entire market for a product, usually because of a barrier to entry such as a technology only available to that company. Pure monopoly exists when a single firm is the sole producer of a product for which there are no close substitutes. Examples are public utilities and professional sports leagues, Characteristics 1. A single seller: the firm and industry are synonymous. Seller Entry Barriers No No Yes No Yes No Seller Number Many Many Few Many One Many Buyer Entry Barriers No No No Yes No Yes Buyer Number Many Many Many Few Many One

2. Unique product: no close substitutes for the firms product. 3. The firm is the price maker: the firm has considerable control over the price because it can control the quantity supplied. 4. Entry or exit is blocked. Monopolistic competition Monopolistic competition is a type of imperfect competition such that many producers sell products that are differentiated from one another as goods but not perfect substitutes (such as from branding, quality, or location). In monopolistic competition, a firm takes the prices charged by its rivals as given and ignores the impact of its own prices on the prices of other firms.[1][2] In the presence of coercive government, monopolistic competition will fall into government-granted monopoly. Unlike perfect competition, the firm maintains spare capacity. Models of monopolistic competition are often used to model industries. Textbook examples of industries with market structures similar to monopolistic competition include restaurants, cereal, clothing, shoes, and service industries in large cities. The "founding father" of the theory of monopolistic competition is Edward Hastings Chamberlin, who wrote a pioneering book on the subject, Theory of Monopolistic Competition (1933).[3] Joan Robinson published a book The Economics of imperfect competition with a comparable theme of distinguishing perfect from imperfect competition. Monopolistically competitive markets have the following characteristics: There are many producers and many consumers in the market, and no business has total control over the market price. Consumers perceive that there are non-price differences among the competitors' products. There are few barriers to entry and exit.[4] Producers have a degree of control over price. The long-run characteristics of a monopolistically competitive market are almost the same as a perfectly competitive market. Two differences between the two are that monopolistic competition produces heterogeneous products and that monopolistic competition involves a great deal of non-price competition, which is based on subtle product differentiation. A firm making profits in the short run will nonetheless only break even in the long run because demand will decrease and average total cost will increase. This means in the long run, a monopolistically competitive firm will make zero economic profit. This illustrates the amount of influence the firm has over the market; because of brand loyalty, it can raise its prices without losing all of its customers. This means that an individual firm's demand curve is downward sloping, in contrast to perfect competition, which has a perfectly elastic demand schedule. Major characteristics There are six characteristics of monopolistic competition (MC): Product differentiation Many firms Free entry and exit in the long run Independent decision making Market Power Buyers and Sellers do not have perfect information (Imperfect Information) Oligopoly An oligopoly is a market form in which a market or industry is dominated by a small number of sellers (oligopolists). Oligopolies can result from various forms of collusion which reduce competition and lead to higher costs for consumers. [1] Alternatively, oligopolies can see fierce competition because competitors can realize large gains and losses at each other's expense. In such oligopolies, outcomes for consumers can often be favorable. Because there are few sellers, each oligopolist is likely to be aware of the actions of the others. The decisions of one firm influence and are influenced by the decisions of other firms. Strategic planning by oligopolists needs to take into account the likely responses of the other market participants.

Characteristics Profit maximization conditions: An oligopoly maximizes profits by producing where marginal revenue equals marginal costs.[2] Ability to set price: Oligopolies are price setters rather than price takers.[2] Entry and exit: Barriers to entry are high.The most important barriers are economies of scale, patents, access to expensive and complex technology, and strategic actions by incumbent firms designed to discourage or destroy nascent firms. Additional sources of barriers to entry often result from government regulation favoring existing firms making it difficult for new firms to enter the market. Number of firms: "Few" a "handful" of sellers.[3] There are so few firms that the actions of one firm can influence the actions of the other firms.[5] Long run profits: Oligopolies can retain long run abnormal profits. High barriers of entry prevent sideline firms from entering market to capture excess profits. Product differentiation: Product may be homogeneous (steel) or differentiated (automobiles).[4] Perfect knowledge: Assumptions about perfect knowledge vary but the knowledge of various economic factors can be generally described as selective. Oligopolies have perfect knowledge of their own cost and demand functions but their interfirm information may be incomplete. Buyers have only imperfect knowledge as to price,[3] cost and product quality. Interdependence: The distinctive feature of an oligopoly is interdependence.[6] Oligopolies are typically composed of a few large firms. Each firm is so large that its actions affect market conditions. Therefore the competing firms will be aware of a firm's market actions and will respond appropriately. This means that in contemplating a market action, a firm must take into consideration the possible reactions of all competing firms and the firm's countermoves.[7] It is very much like a game of chess or pool in which a player must anticipate a whole sequence of moves and countermoves in determining how to achieve his or her objectives. For example, an oligopoly considering a price reduction may wish to estimate the likelihood that competing firms would also lower their prices and possibly trigger a ruinous price war. Or if the firm is considering a price increase, it may want to know whether other firms will also increase prices or hold existing prices constant. This high degree of interdependence and need to be aware of what other firms are doing or might do is to be contrasted with lack of interdependence in other market structures. In a perfectly competitive (PC) market there is zero interdependence because no firm is large enough to affect market price. All firms in a PC market are price takers, as current market selling price can be followed predictably to maximize short-term profits. In a monopoly, there are no competitors to be concerned about. In a monopolistically-competitive market, each firm's effects on market conditions is so negligible as to be safely ignored by competitors. Non-Price Competition: Oligopolies tend to compete on terms other than price. Loyalty schemes, advertisement, and product differentiation are all examples of non-price competition.

Determinants of Market Structure 1. Government laws and policies-in some industries the government controls the degree of competition in the interest of the economy and the consumer. 2. Technology-technology has a great impact of the market structure because good or better substitutes have been developed. 3. Business Policies and Practices- presence of giant firm discourage the entry of new firms with little resources. -Cut-throat competition 4.Economic Freedom-In a free enterprise economy or free competition economy, it is survival of the fittest -the most efficient firm remain in business.

Determinants of Demand When price changes, quantity demanded will change. That is a movement along the same demand curve. When factors other than price changes, demand curve will shift. These are the determinants of the demand curve. 1. Income: A rise in a persons income will lead to an increase in demand (shift demand curve to the right), a fall will lead to a decrease in demand for normal goods. Goods whose demand varies inversely with income are called inferior goods (e.g. Hamburger Helper). 2. Consumer Preferences: Favorable change leads to an increase in demand, unfavorable change lead to a decrease. 3. Number of Buyers: the more buyers lead to an increase in demand; fewer buyers lead to decrease. 4.Price of related goods: a. Substitute goods (those that can be used to replace each other): price of substitute and demand for the other good are directly related. Example: If the price of coffee rises, the demand for tea should increase.

b. Complement goods (those that can be used together): price of complement and demand for the other good are inversely related. Example: if the price of ice cream rises, the demand for ice-cream toppings will decrease. 5. Expectation of future: a. Future price: consumers current demand will increase if they expect higher future prices; their demand will decrease if they expect lower future prices. b. Future income: consumers current demand will increase if they expect higher future income; their demand will decrease if they expect lower future income. marginal product In economics, the marginal product of labor (MPL) is the change in output that results from employing an added unit of labor.[1 The marginal product of a factor of production is generally defined as the change in output associated with a change in that factor, holding other inputs into production constant. Examples There is a factory which produces toys. When there are no workers in the factory, no toys are produced. When there is one worker in the factory, six toys are produced per hour. When there are two workers in the factory, eleven toys are produced per hour. There is a marginal product of labor of 5 when there are two workers in the factory compared to one. When the marginal product of labor is positive, this is called increasing marginal returns. However, as the number of workers increases, the marginal product of labor may not increase indefinitely. When not scaled properly, the marginal product of labor may go down when the number of employees goes up, creating a situation known as diminishing marginal returns. When the marginal product of labor becomes negative, it is known as negative marginal returns

Definition of 'Marginal Revenue Product - MRP' The change in revenue that results from the addition of one extra unit when all other factors are kept equal. The marginal revenue product is used in marginal analysis to examine the effect of variable inputs, such as labor, and follows the law of diminishing marginal returns. As the number of units of a variable input increase, the revenue generated by each addition unit decreases at a certain point. It is calculated by taking the marginal product of labor and multiplying it by the marginal revenue of a firm. The marginal revenue product is different than the marginal product in that it is not a measure of quantity but a measure of revenue. The MRP is often used to calculate the affect of adding employees, as companies want to add employees up to the point at which additional labor won't bring in enough revenue to cover costs. Marginal Resource Cost (MRC) The amount the total cost of employing a resource increases when a firm employs 1 additional unit of the resource (the quantity of all other resources employed remaining constant); equal to the change in the total cost of the resource divided by the change in the quantity of the resource employed. Income distribution In economics, income distribution is how a nations total GDP is distributed amongst its population. Income and distribution has always been a central concern of economic theory and economic policy. Classical economists such as Adam Smith, Thomas Malthus and David Ricardo were mainly concerned with factor income distribution, that is, the distribution of income between the main factors of production, land, labour and capital.

Modern economists have also addressed this issue, but have been more concerned with the distribution of income across individuals and households. Important theoretical and policy concerns include the relationship between income inequality and economic growth. The distribution of income within a community may be represented by the Lorenz curve. The Lorenz curve is closely associated with measures of income inequality, such as the Gini coefficient. Types of income distribution Economists examine two main typesof income distribution: Personal income distribution: distribution of income among different people or income groups Factor distribution of income: distribution of income among different : distribution of income among different factors of production, like labor, land and capita Causes of inequality There are many reasons for economic inequality within societies. Recent growth in overall income inequality, at least within the OECD countries, has been driven mostly by increasing inequality in wages and salaries."[9] Common factors thought to impact economic inequality include: labor market outcomes [9] globalization;[18] technological changes; policy reforms;[9] more regressive taxation[19] computerization and increased technology;[18] racial discrimination;[20] the gender pay gap;[21] nepotism.[22] variation in natural ability Neoclassical distribution theory In neoclassical economics, the supply and demand of each factor of production interact in factor markets to determine equilibrium output, income, and the income distribution. Factor demand in turn incorporates the marginal-productivity relationship of that factor in the output market. Analysis applies to not only capital and land but the distribution of income in labor markets. The neoclassical growth model provides an account of how distribution of income between capital and labor are determined in competitive markets at the macroeconomic level over time with technological change and changes in the size of the capital stock and labor force.[8] More recent developments of the distinction between human capital and physical capital and between social capital and personal capital have deepened analysis of distribution. Rent, Rent, in economics, the income derived from the ownership of land and other free gifts of nature. The neoclassical economist Alfred Marshall, and others after him, chose this definition for technical reasons, even though it is somewhat more restrictive than the meaning given the term in popular usage. Apart from renting land, it is of course possible to rent (in other words, to pay money for the temporary use of any property) houses, automobiles, television sets, and lawn mowers on the understanding that the rented item is to be returned to its owner in essentially the same physical condition. Interest, the price paid for the use of credit or money. It may be expressed either in money terms or as a rate of payment. A brief treatment of interest follows. For full treatment, see capital and interest. Interest may also be viewed as the income derived from the possession of contractual promises from others to pay sums in the future. The question may be asked, What is the value today of a promise to pay $100 a year from now? If the answer is $100, then no interest income is generated. Most people, however, would require an inducement

Profit, in business usage, the excess of total revenue over total cost during a specific period of time. In economics, profit is the excess over the returns to capital, land, and labour (interest, rent, and wages). To the economist, much of what is classified in business usage as profit consists of the implicit wages of manager-owners, the implicit rent on land owned by the firm, and the implicit interest on the capital invested by the firms owners. In conditions of competitive equilibrium, pure profit would not exist, because the competitive market would cause the rates of return to capital, land