Market Structures: Comparing Short-Run and Long-Run Dynamics

This assignment provides a comparative analysis of four key market structures: perfect competition, monopolistic competition, oligopoly, and monopoly. It examines the number of producers, product differentiation, pricing power, barriers to entry, and non-price competition within each structure. The assignment delves into the economic profits earned in the short and long run, considering factors affecting cost curves and demand curves. It discusses the average total cost (ATC) curve, illustrating how companies in each market structure make decisions and achieve equilibrium. The analysis includes graphical representations of cost curves and profit scenarios, providing a comprehensive understanding of market dynamics and the differences in performance across various market structures.

Running Head: MARKET STRUCTURES 0
Market Structures
Student Details:

MARKET STRUCTURES 1
Difference between market structures in long-run and short-run
In economics, all four market structures are differentiated based on the number of
producers, product differentiation degree, producer pricing power, barriers to entry of new
producers, and the non-price competition level (Jan, 2019). Moreover, there are numerous
factors affecting the market’s cost curves and demand curves and examining whether
companies in that market ultimately earn any positive economic profit in the long-run or/and
short-run.
Market Structure Perfect
competition
Monopolistic
competition
Oligopoly Monopoly
Number of
companies
Many Many Few One
Barriers to entry No Few Yes Yes
Nature of product Homogeneous Differentiated Differentiated Unique
Control over
prices
No Little Some Yes
Economic profit
in the long-run
No No Yes Yes
Positive economic
profit
Short run Short run Short run and
long run
Short run and
long run
Source: by Author.
ATC (average total cost) curve
In economics, when total cost is divided by the total output quantity to be produced is
termed as ATC; also, named as AC (average cost) (Baldwin & Scott, 2013). ATC curve is U-
shaped typically and calculation is based on dividing variable cost by the quantity produced.

MARKET STRUCTURES 2
This shows a U-shaped ATC curve as an example analysing costs based on a per-unit
where ATC is calculated by dividing total cost by the total produced quantity (Degryse, de
Goeij, & Kappert, 2012). In AC of companies, production is lower than the market price
where a company earns its profits.
In perfect competition, companies need to cover ATC or AC (average cost) in the
long run where supply is MC (marginal cost) over ATC as showing in Fig1.
In monopolistic competition, companies in the long run earn a normal profit where at
the point of equilibrium, ATC is equals to prices and economic profits are zero. It is occurred
at the tangency point of the demand curve and ATC as per chosen by the firm at the output as
shown in Fig2 and Fig 3.
In oligopoly, companies earn abnormal economic profits acting like a single firm due
to having a formal collusive agreement where prices are set and output is restricted as shown
in Fig4.
In monopoly, it is essential for the companies to have price is more than short-run
ATC (SATC) where XY as shown in (Fig5) differentiates as supernormal profit each unit.
This profit can be sustained for the monopolist in the long-run, but there is no guarantee of
earning supernormal profits in monopoly showing less differentiation between long run and
short run (Zeder, 2020). In Fig6, combining both monopolist earning a normal profit and
sustaining a lost where it depends of the costs structure in terms of given demand level.

MARKET STRUCTURES 3
Fig1: Production costs in a perfect competition
Fig2: Firm’s equilibrium under monopolistic competition

MARKET STRUCTURES 4
Fig3: Firm in monopolistic equilibrium
Fig4: Oligopoly showing non-price competition

MARKET STRUCTURES 5
Fig5: Monopoly in short-run equilibrium
Fig6: Monopolist earning a normal profit and sustaining a loss in short-run

MARKET STRUCTURES 6
References
Baldwin, W., & Scott, J. (2013). Market Structure and Technological Change. New York:
Taylor & Francis.
Degryse, H., de Goeij, P., & Kappert, P. (2012). The impact of firm and industry
characteristics on small firms’ capital structure. Small Business Economics, 38(4),
431-447.
Jan, I. (2019, February 18). Market Structure. Retrieved from Xplaind:
https://xplaind.com/578696/market-structure
Zeder, R. (2020, January 31). The Four Types of Market Structures. Retrieved from
Quickonomics: https://quickonomics.com/market-structures/