2. Market means a place where there are many
buyers and sellers with different products who
are actively engaged in buying and selling acts.
The price and level of production of a
commodity depends upon the market structure
of its conditions.
3. Number and size of sellers and
Type of the product
Conditions of entry and exit
Transparency of information
Factors Governing a Market
5. A perfect competition market refers to the
competition among the sellers and buyers. Where
are large number of potential firms and sellers,
and large number of potential buyers with a
homogeneous product and the price of the product
is determined by the market forces in an industry.
6. There is one price that prevails in the market. All firms sell
the product at the prevailing price.
According to Leftwitch, "Perfect competition is a market in
which there are many firms selling identical product with no
firm being large enough relative to the entire market so as
to be able to influence market price."
7. Example- Fruit Market. A fruit market has various sellers selling
fruits at more or less the same price and thus it is the choice of
the consumer to buy the fruits from any of the sellers as per their
Thus, a perfect market is based on the factor of quality more than
the price of the commodity when the prevailing price is subject to
all sellers selling the same commodity.
8. (1) Large number of buyers and sellers: There is a large number of buyers and
sellers of a commodity under perfect competition
(2) Homogeneous Product: the product sold by the various firms are
(3) Absence of artificial Restrictions: non-existence of any artificial restrictions on
the demands, supplies, prices of goods and factors of productions in the market.
There must not be any external intervention in price fixation and any controls on
(4) Free entry and exit: The firms are free to enter or to exit from the industry
whenever they want to do so. Any firm can enter or leave the industry at any time
as there are no legal restrictions.
9. (7) Non-Existence of transportation cost: A perfectly competitive market also
assumes that it is essential that there is no transportation cost across different
areas of the market.
(6) Perfect mobility of the factors of production: It means all the factors of
production are perfectly mobile under perfectly competitive market. Factors will
move to the industry which pays the higher remuneration.
(5) Perfect knowledge about the market: There is perfect knowledge on the part of
buyers and sellers about market conditions. The buyers and sellers are fully aware
of the price prevailing in the market.
(8) Firms are profit maximizers.
10. The goal of a competitive firm is to maximize the profit.
This means that the firm will want to produce the quantity that
maximizes the difference between total revenue and total cost.
Total Cost = Fixed Cost x Variable Cost
Total Revenue = Price x Quantity
Firms are profit maximizers.
11. In the perfectly competitive market, a single market price
determined by the forces of total demand and total supply in market.
Every seller or a buyer is a price taker.
agree Don’t agree
Bargaining is the major weapon of price determine in the competition market.
13. What happens in a competitive
Supply increases – price falls
Long run – normal profit made
Choice for consumer
Other firms enter the industry to take advantage of profit
14. Advantages of Perfect
• High degree of competition helps allocate
resources to most efficient use
• Price = marginal costs
• Normal profit made in the long run
• Firms operate at maximum efficiency
• Consumers benefit
15. Fact is that;
there is no perfect competition market in the world. It is just a hypothetical
concept. It is not possible to be . BECAUSE it contains
Large area of market
Large number of seller and buyers
Same goods and commodities
same quality of goods
Same purchasing power of buyers
How it can be possible ?
16. A market structure in which only one producer or
seller exists for a product that has no close
17. The characteristics of Monopoly
No Close Substitutes
Availability of information(Imperfect)
18. Monopolies exist because of barriers to entry into a market that
prevent competition. ex:-railways, electricity.
There are three general classes of barriers to entry :
•Natural barriers, the most common being economies of
•Actions by firms to keep other firms out.
•Government (legal) barriers
19. The most effective example of explaining a Monopoly
Market would be of an Electricity supplying company like
BSES that dominates the supply of electricity in most
parts of Delhi without any effective competition to it.
Here, other rivals firms are supplying electricity on a
short scale as they are unable to counter the major sales
made by BSES hence this is an example of Monopoly
21. The Term “Oligopoly” has been derived from two Greek words.
‘Oligi’ which means few and ‘Polien’ means sellers.
Thus Oligopoly is an abridged version of monopolistic competition . It is
a competition among few big sellers each one of them selling either
homogenous or hetrogenous products.
22. Factors that give rise to oligopoly are :
Huge capital investment
Economies of scale.
Control over certain raw materials
Merger and takeover.
23. 1. Few Sellers : An oligopoly market is characterized by a
few sellers and their number is limited . Oligopoly is a
special type of imperfect market. It has a large number of
buyers but a few sellers.
2. Homogeneous or Differentiated Product : The
Oligopolists produce either homogenous or differentiated
products. Products may be differentiated by way of design
, trademark or service
24. 3. Interdependence : The most important feature of the
Oligopoly is the interdependence in decision making of
the few firms which comprise the industry.
The reactions of the rival firms may be difficult to
guess. Hence price is indeterminate under
25. 5. Competition : Competition is unique in an oligopoly
market. It is a constant struggle against rivals.
6. Group Behavior : Each Oligopolist closely watches
the business behavior of other Oligopolists in the
industry and designs his moves on the basis of
some assumptions of their behavior .
26. 7. Uncertainty : The interdependence of other firms for
one’s own decision creates an atmosphere of uncertainty
about price and output.
8. Price Rigidity : In an oligopoly market each firm sticks to
its own price to avoid a possible price war. The price
remains rigid because of constant fear of retaliation from
27. Monopolistic competition is a type of imperfect
competition such that many producers sell products that
are differentiated from one another (e.g. by branding or
quality) and hence are not perfect substitutes.
In monopolistic competition, a firm takes the prices
charged by its rivals as given and ignores the impact of
its own prices on the prices of other firms.
28. Product differentiation implies that the products are
different enough that the producing firms exercise a
“mini-monopoly” over their product.
The firms compete more on product differentiation than
Entering firms produce close substitutes, not an identical
or standardized product.
29. The four distinguishing characteristics of
monopolistic competition are:
• Many sellers.
• Differentiated products.
• Multiple dimensions of competition.
• Easy entry of new firms in the long run.
30. Monopolistic competition can be explained by the
example of two major Car Selling Brands like say, Audi
and BMW. Both of these companies introduce new and
enhanced models in a bid to increase their sales and
outdo one another.
Thus if one company were to introduce a model that is
cheaper and more efficient then the other company
would be forced to reconsider its marketing strategy
within the same price range in order to appeal more to
Here other companies apart from Audi and BMW are
also subject to reconsider their plans and introduce new
cars in order to appeal to the public. Hence the entry of
other firms is not banned in such a market.
31. When there are many sellers, they do not take into
account rivals’ reactions.
The existence of many sellers makes collusion
Monopolistically competitive firms act independently.
32. There are no significant barriers to entry.
Barriers to entry prevent competitive pressures.
Ease of entry limits long-run profit.
34. Advertising increases ATC
• The goals of advertising are to increase demand and
make demand more inelastic
• Perfectly competitive firms have no incentive to
advertise, but monopolistic competitors do
• The increase in cost of a monopolistically competitive
product is the cost of “differentness”