Market Structure of Economy

Running head: Market Structure of Economy
Market Structure of Economy
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Market Structure of Economy1
Table of Contents
Answer a..........................................................................................................................................2
Answer b..........................................................................................................................................6
Answer c........................................................................................................................................10
Answer d........................................................................................................................................12
References......................................................................................................................................15

Market Structure of Economy2
Answer a
Structure of market of an economy is of four types namely perfect competition,
monopoly, oligopoly and monopolistic competition. Firms that participate in a market economy
belongs to any of the above said market structure. Competition among firms is most intense in
perfect competition and least in monopoly. The monopoly market structure is the most
appropriate from the producers’ respect and from the consumers’ respect point of view perfect
competition is the appropriate. Thus all the market structures are different from each other.
Oligopoly and monopolistic competition market structure are however, features characteristics
between perfect competition and monopoly. The thorough discussion of the four types of market
structure has been given separate in the following paragraphs.
1) Monopoly: The main feature if the monopoly market is that it has only one firm that caters the
entire market with unlimited buyers. The firm has the maximum market power in this type of
market structure and thus the firm can set and charge any price it willing to charge and
maximizes the profit. Important characteristics of the market that supports the firm to have
complete market power are raw material exclusiveness, unique product and large amount of
fixed cost. In most of the scenarios the raw material is manufactured by the firm exclusively in
its facility that is further used in manufacturing of goods which is unique in nature due to which
the buyers need to depend on the single sellers. The fixed cost in this market structure is huge
that makes entry in the market quite difficult and also existing single firm creates restriction for
the new firms during entrance, thus the monopoly markets structure is featured by extreme
barriers to exit and entry. Indian Railways is a monopoly company though regulated has
complete market power over the railway transport industry. Therefore if it wishes it can charge

Market Structure of Economy3
any price above the competitive market price and supernormal profit. The illustration of the
market structure is given in the diagram below.
Figure 2: Monopoly market structure
Source: (Created by the Author)
Customers in railway market faces monopoly pricing and thus pays more value for the
product. Thus, in monopoly market structure surplus of customer is very low that occurred in the
deadweight loss. The social welfare loss occurs during the monopoly market operation and it
proves that the government is inefficient. Therefore, the market structure is inefficient in
relocating resources.
2) Perfect Competition: The main characteristics of the perfectly competitive market that it has
unlimited buyers and unlimited beers. The large number of players in the market and large