Economics - Market Structures

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|Business Economics and the Distribution of Income |

By the end of these course notes students are expected to have covered the following from the specification:

• The range of market structures
• How costs and revenues vary in different market structures • Changes in costs and revenues in different market structures

The range of market structures

|Type |Perfect competition |Imperfect competition |Oligopoly |Monopoly | |Example |Financial markets and |Small service sectors, |Supermarket chains, banking|Microsoft? | | |commodities |bars, restaurants | |The Beckhams? |

For the range of market structures the important competitive factors seem to be a) number of buyer and sellers, b) number of competitors, c) the degree of product differentiation, d) the level on entry and exit barriers.

Normal and super-normal profits

Economic profits are revenues – costs but in assessing costs the Economist also takes into account returns to investors.

Normal economic profits are equal to the rate of return from the economy e.g. a bank account (taking into account risk of investment etc).

Supernormal profits are above normal economic profits.

In many economics questions you must consider the impacts of various factors e.g. a change in market supply or demand, government legislation and intervention, economies of scope and scale etc. and work out how they change this basic model.

Perfect competition
In perfect competition the firm is a price taker and so demand is perfectly elastic. This means that the demand curve will be a horizontal line. [pic]
If a firm is earning ‘normal’ economic profits then profit maximisation will...
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