Running head: THE MARKET STRUCTURE
1
The Market Structure
Kaylee Gushwa
Central Christian College of Kansas
BSEC 260
Dr. David Ferrell
Running Head: THE MARKET STRUCTURE
2
TABLE OF CONTENTS
INTRODUCTION …………………………………………………………………………………………………………………….. #3
PURE COMPETITION …………………………………………………………………………………………………………….. #3
MONOPOLISTIC COMPETITION ………………………………………………………………………………………….. #5
COMPARE AND CONTRAST ………………………………………………………………………………………………….. #6
OLIGOPOLY …………………………………………………………………………………………………………………………… #6
PURE MONOPOLY …………………………………………………………………………………………………………………. #7
CONCLUSION …………………………………………………………………………………………………………………………. #9
Running Head: THE MARKET STRUCTURE
3
Introduction
“The tension between centrality, on the one hand, and competition, on the other, is
probably the oldest of all market structure issues” (Levitt, 2018, p. 1). The market structure helps
one understand how the market functions, the firm behaviors, and the outcomes of producing by
the market. There are four different types of market structures: pure competition, monopolistic
competition, oligopoly, and pure monopoly. The market structure can be defined as, the number
of firms producing the same goods or services in a particular market, the size, control over price,
etc. In economics “market” is the total of all buyers and sellers within a city, state, country, etc.
Pure Competition
The pure competition, otherwise called competitive market has a very large number of
firms and buyers, the type of product is typically standardized, there isn’t any control over price,
it is very easy to enter and exit the market (with a low sunk cost) , and there isn’t a non-price
competition to distinguish their product or service because the firms produce the same products.
All of the firms are price takers, causing the demand curve of the firm to be perfectly
elastic. Perfect competition is extremely rare to find, but it is often used to compare to other
economic models. Since a perfectly competitive firm has a perfectly elastic demand curve, the
firm can sell any quantity at the market price. It is made so that the marginal revenue curve is a
horizontal line compared to the market price and is the same as the demand curve.
(Courses.lumenlearning.com, 2018, p. 13)
Economic profit is the total revenue minus the total cost, including the explicit and
implicit costs. Economic profit is what motivates firms to supply goods and services. A profit-
maximizing monopolist will choose the output level where marginal revenue equals marginal
Running Head: THE MARKET STRUCTURE
4
cost and the corresponding price of the demand curve. If marginal revenue is greater than
marginal cost, the profit is increasing if the firm increases the quantity. If marginal revenue is
less than marginal cost, the profit is increasing if the firm decreases the quantity. On the subject
of profit some other expressions for profit equals to total revenue minus total cost are (profit
times quantity) minus (average total cost time quantity) and (profit minus average total cost) time
quantity. Firms will continue to produce as long as the market price is above the shutdown price.
The shutdown price sets where the average variable cost is at its minimum. If the firm’s variable
costs surpass the total revenue, the firm would maximize its profits by shutting down, in the short
run. The amount of money an asset would be sold at to cover the costs of obtaining and
maintaining it sets the point where the average total cost is at its lowest. When it is below the
