Market structures can be categorized according to two dimensions: How many producers there are and the extent to which products are differentiated. Explain how this categorization leads to four...

Answer the following three exam questions as best &much as possible
1
Answer the following three exam questions as best &much as possible.
References should be from books, academic resources, etc.
1. Market structures can be categorized according to two dimensions: How many
producers there are and the extent to which products are differentiated. Explain
how this categorization leads to four different market structures: 1) perfect
competition; 2)monopoly; 3) oligopoly; and 4) monopolistic competition. [5 marks]
In economics, we study 4 forms of market, namely:
i) perfect competition
ii) imperfect competition: there are 3 types of imperfectly competitive markets, they are:
a) monopoly
) monopolistic competition
c) oligopoly
Any market can be segmented into any one of the above forms of market, depending on certain
characteristics, they are:
a) no. of buyers and sellers
) producer’s control over price
c) type of the commodity
d) existence of entry ba
ier
e) other characteristics such as possibility of advertising, price discrimination, etc.
Perfect competition or pure competition: the main characteristics of this type of market are
given by:
a) large no. of buyers and sellers: in this case, there can be infinite no. of buyers and sellers
in the market, each having a very small market share.
) Homogeneous product: each producer produces output which are identical in quantity
and quantity.
c) Price taking behavior : as the number of buyers and sellers are very large, no one can
influence price in the market, i.e, every one is price taker in this case.
d) No ba
iers to entry and exit: in this type of markets, such as fish, fruit, vegetable
market, the fixed cost of production is not large. As a result, there is no cost advantage
for the existing firms. Thus, there is no ba
iers to entry or exit.
e) Perfect mobility of resources: the buyers can move from one seller to another. On the
other hand, sellers can employ identical factors of production.
f) Identical cost structure for all the producers and absence of increasing returns to scale:
as a result, no one can enjoy any cost advantage.
Monopoly:
This form of market contains the following characteristics:
a) Only one seller serving indefinite no. of buyers: in this case, the producer have full
control over the market price. He can charge any price and sell any level of output,
exploiting the consumers.
2
) Producer is a price maker: as the producer has full control over market price, he sets
price of his product.
c) Huge fixed cost acting as entry ba
ier: in these types of industries, such as railways,
telephone, etc, there is huge fixed cost involved. The variable cost is very low. As a
esult, the fixed cost acts as an entry ba
ier.
In case of monopoly, certain quality or education plays an important role as an entry
a
ier. Suppose, a certain cardiologist has monopoly is heart surgery in a city. Here, his
education and experience acts as an entry ba
ier as a potential entrant will never have
that much experience.
d)...