Microeconomics Final

Market Structure

Competitive environment in which you are doing business

Market Structure Informs…

Your pricing strategy and output decisions

Summarized by Market Structure

Extent and type of competition

Market Power

Extent to which a seller can charge a higher price without losing many sales to competing businesses

Perfect competition

Markets in which all businesses in an industry sell identical goods and there are many buyers and sellers, each of whom is small relatively to the size of the market

Monopoly

There is only one seller in the market

Oligopoly

A market with only a handful of large sellers

Monopolistic Competition

A market with many small businesses competing, each selling differentiated products

Product Differentiation

Efforts by sellers to make their products differ from those of their competitors

Imperfect competition

A market featuring few competitors, but with sufficiently limited competition that sellers still have some market power

Firm demand curve

Illustrates how the quantity that buyers demand from an individual business varies as it changes the price it charges

With a little market power, your firms demand curve is

Relatively flat, highly elastic

With little market power, by raising prices a little it

Sharply reduces the quantity you sell

Formula for marginal revenue

Change in TR / Change in Q

Formula for total revenue

Price x Quantity

Formula for Output Effect

Price X Change in quantity

Formula for discount effect

Change in Price x Quantity