University of Balamand

Faculty of Business & Management

Survey of Economics

Market Structure:

Market Structure is about how suppliers of a certain product are behaving in the market and
how much power they have. It is the number and the relative size of firms in an industry.

Perfect Monopolistic Oligopoly Duopoly Monopoly

Competition Competition

 Perfect Competition:

 Characteristics:

- Many buyers, many sellers.

- No seller or buyer big enough to affect market prices.
- Price-takers not price-makers.
- Homogeneous product: the product is identical in the industry considered.
- Low barriers to entry: products are identical  firms are not powerful When there are profits in an
industry, firms will find it easy to
there is absence of advertising enter this industry.
- perfect information: buyers and sellers are informed about prices, costs and
opportunities

 Examples of Perfect Competition:

Wheat market and stock market

 Demand Curve:

The demand curve facing a perfectly competitive single firm is horizontal; it is

perfectly elastic.
If the producer does not lose all his customers when he increases the price  he
is not operating in a perfectly competitive market structure.

P P
S

P* MR=d=P

Q* Q Q

The demand curve facing The demand curve facing

the whole industry: downward sloping A single firm: horizontal
University of Balamand
Faculty of Business & Management
Survey of Economics

Horizontal:
The single supplier is selling all he wants at this price:
1. It is illogical to decrease his price.
2. If he increases the price, he will lose all of his customers (homogeneous
product and many other suppliers to buy from).

If all producers increase production  new equilibrium, since supply curve shifts
to the right  P will decrease  the demand curve facing the single perfect
competitors will be below the old one.

P S P
S’

P* P d

P*’ P2 d’
D

Q Q

 Marginal Revenue (MR):

∆𝑇𝑅
MR is the extra revenue a firm gets from selling one additional unit. MR = ∆𝑄
In the case of a perfect competitor, MR = P because the firm will sell each
additional unit at a fixed price. This fixed price is the addition to TR, it is the MR.
P
TR1 = P x Q TR2 = P x (Q + 1)

MR=d
∆𝑇𝑅 𝑇𝑅2−𝑇𝑅1
MR = = = TR2 – TR1 = PQ+P-PQ = P
∆𝑄 𝑄+1−𝑄

Q Q+1 Q
University of Balamand
Faculty of Business & Management
Survey of Economics

 Monopoly:

 Characteristics:

- Single producer, many buyers.

- The product is unique; it has no close substitutes.
- Great control over price but under government regulations.
- Monopolists do not always make a profit. They can make profits, breakeven, or
make losses depending on their cost conditions.
- Very high barriers to entry.

 Examples of Monopolies:

Electricity, telephone service (Ogero in Lebanon) … these are natural

monopolies.

 Demand curve:
The demand curve facing a monopolist is downward sloping because to sell more
units, the monopolist has to decrease his price.

 Total Revenue & Marginal Revenue:

Q P=AR=TR/Q TR MR=∆TR/∆Q
0 200 0 180
1 180 180 140
2 160 320 100
3 140 420 60
4 120 480 20
5 100 500 -20
6 80 480 -60
7 60 420 -100
8 40 320 -140
9 20 180 -180
10 0 0

TR

eD=1
500

0 5 10 Q
University of Balamand
Faculty of Business & Management
Survey of Economics