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IN CRITICAL MOMENTS EVEN THE VERY POWERFUL HAVE NEED OF THE WEAKEST

Definition of MARKET
is a situation where buyers and sellers come in contact with each other for buying and selling goods and services at a particular price at a point of time. Two Parties Product or Services Price Time
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Market Structure

As per Area

As per Time

As per Competition

Local National International

Very Short Run Short Run Long Run Secular Period

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Market as per competition

Pure or Perfect competition Imperfect competition (1) Monopolistic Competition (2) OligopolyDuopoly

Monopoly
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Market as per competition

Perfect Competition

Imperfect Competition

Monopoly

Monopolistic Competition

Oligopoly

Duopoly

Perfect Competition
Large number of buyers and sellers Homogeneous products Firm is a pricetaker Free Entry and Exit Prefect Knowledge Prefect mobility of factors of production. No transport cost Examples: Vegetable market, Agricultural market

Price Determination under PC

Price (Rs) 2 4 6 8 10 Quantity DD Quantity SS Equilibrium 900 800 700 600 400 00 100 200 300 400 SS<DD SS<DD SS<DD SS<DD SS=DD

12
14

300
200

800
900

SS>DD
8 SS>DD

Revenue Relationship under PC

Price (Rs.) 10 10 10 10 10 10 10 10 10 10 Quantity 1 2 3 4 5 6 7 8 9 10 TR 10 20 30 40 50 60 70 80 90 100 MR 10 10 10 10 10 10 10 10 10 10

Price-Output Determination under Perfect Competition

Industry DD SS Ep=Infinity E 10
10

Firm

DD=AR =MR

400

Quantity Demanded and Supplied

Output
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SR- Price Output determination Y under Perfect Competition

Revenue & Costs MC

MR>MC
P F E
AR=MR=DD

Qo

Q1

X Output
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SR- Price Determination under Perfect Competition

AC Y
Revenue and Costs

MC
R Abnormal profits P s
AR=MR=DD E

Output

X
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SR- Price Determination under Perfect Competition

Y
Revenue and Costs

Normal Profits
MC Break-even point

AC

AR=MR=DD E

output

X
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SR- Price Determination under Perfect Competition

Y Revenue and Cost AC

MC
E Super normal Profits S
AR=MR=DD

P
R

output

X
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LR- Price Determination under Perfect Competition

Revenue and Costs Y

Normal profits
LAC

LMC

P E

AR=MR=DD

X Q output
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Monopoly Competition
One Seller many buyers Single product Firm is a Price maker Barriers to Entry Price Discrimination Examples: Railways
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SR- Price Determination in Monopoly

Y Supernormal Profits MC AC

Revenue and Costs

E AR=DD o Q X output
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MR

SR- Price Determination in Monopoly Y

Abnormal Profits T s

AC MC

Revenue and Costs

R P

E AR=DD o Q Output X
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MR

Normal Profits
Y MC

AC

Revenue and Costs

AR=DD o Q X

MR

output

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LR- Price Determination under Monopoly

Under Monopoly the firm continues to earn Supernormal profits during long-run as there is barrier to entry.

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LR- Price Determination in Monopoly

Y Supernormal Profits LMC LAC

Revenue and Costs

E AR=DD o Q X output
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MR

Relax!!!
An Economist explains his reason for having two wives 1.Monopoly should be broken And 2. Competition improves the services
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Price discrimination
..it

is charging different prices to different customers for the same product.

Price discrimination is Possible:- Legal Sanction Nature of commodity Geographical Barriers Ignorance of Buyers
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Price discrimination is profitable:--

If the elasticity is different in different markets. The monopolist will charge a higher price in an inelastic market and low price in an elastic market.
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Price Discrimination under Monopoly

Sub-Market -A Inelastic Sub Market B Elastic N Total Market MC

Pa

N Pb Ea AR=DDa Qa Qb MRb Eb AR=DDb Q AMR

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E AR=DD

MRa

Comparison of Price and output in between Perfect Competition and Monopoly

Revenue and costs MC
P2
P1 S

AC

E1

AR=MR=DD

E2

Q2

Q1

output
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MR

Dumping
.When a monopolist charges a higher price in the home market and lower price in the international market.

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Monopolistic Competition
Many buyers & Sellers Heterogeneous products Firm is a price maker Free Entry and Exit High selling cost

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SR-Price Determination under Monopolistic

In short-run the situation of firm is same as monopoly. It can earn Normal Profits Supernormal Profits or Abnormal Profits or losses

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LR- Price Determination under Monopolistic

Under Monopolistic competition the firm earns normal profits during long run due to free entry and exit.
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Normal Profits
Y LMC

LAC

Revenue and Costs

AR=DD o Q X

MR

output

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Oligopoly Competition
Few sellers and many buyers Homogenous Pure oligopoly HeterogeneousImperfect oligopoly Firm is a Price-Searcher Barriers to entry Interdependency of sellers Price rigidity High selling cost Example: Automobile, Mobiles, Communication network, steel, cement etc 32

Duopoly Competition
The

Simplest form oligopoly. Two sellers many buyers

of

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Difference between the Competition

Features Buyers & Sellers Product Price Entry & Exit Perfect Monopoly Monopolistic Oligopoly Competition

Shape of Demand Curve

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Difference between the Competition

Features Shape of AR & MR Short Run Profits Long Run Profits Perfect Monopoly Monopolistic Oligopoly Competition

Examples

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Difference between the Competition

Features Perfect Monopoly Competition Buyers & Large Sellers Monopolistic Oligopoly Few Seller

One Seller Many Many Buyer

Product
Price

Entry & Exit Shape of Horizontal Demand Curve

Homogeneo Single us Taker Maker Free Barrier

Heterogeneo Both us Maker Searcher Free Barrier

Kinked
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Downward Downward

Difference between the Competition

Perfect Monopoly Competition Horizontal Downward sloping Supernorma Supernorm l, Normal, al, Normal, Loss Loss Monopolistic Downward Sloping Supernormal, Normal, Loss Oligopoly

Features

Shape of AR & MR ShortRun Profits

Long Run Normal Profits Profits

Supernorm Normal al profits Profits

Examples Vegetable Market

Railways

Soap, oil, toothpaste

Discontin uous Depends upon type of Oligopoly Depends upon type of Oligopoly Automobil 37 e,