Essay on Market Structure
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Market structure is defined as the particular environment of a firm, the characteristics of which influence the firm’s pricing and output decisions. There are four theories of market structure. These theories are:
• Pure competition
• Monopolistic competition
• Oligopoly…show more content…
Examples of perfect competition include some agricultural markets and a small subset of the retail trade. The stock market, where there are hundreds of thousands of buyers and sellers of stock, is also sometimes cited as an example of pure competition.
The theory of monopolistic competition is built on three assumptions: (1.) There are many sellers and buyers. (2.) Each firm produces and sells a slightly differentiated product. (3.) There is easy entry and exit.
The monopolistic firm has no rivals, and it produces a good for which there are no substitutes. In a monopolistic competition, it has a downward slope. This means that it has to lower price to sell an additional unit of the good it produces. Just like the pure competition, monopolistic firm charges the highest price it can possibly charge for its product.
Examples of monopolistic competition includes retail clothing, restaurants, and service stations.
The theory of monopoly is a theory of market structure based on three assumptions: (1.) There is one seller. (2.) The single seller sells a product for which there are no
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