Comapring Market Structures

Economists group industries into four different market structures: perfect competition, monopoly, monopolistic competition, and oligopoly. The following table will briefly represent the characters of each market structure.

Also the following four general graphs demonstrates brief and general ideas regarding demand, costs, revenues, output (quantity), and profits for each of the four market structures.

1. Perfect Competition: The P = MC output allows the competitive producer to maximize profits or minimize losses. At Q₁, the average cost is AC1, and the average profit is equal to the distance P1 and AC1. The total profit is the blue shaded area, which is the average profit times the quantity produced

2. Monopoly: A monopoly maximizes profits by producing the MR = MC output; break-even occurs where AR = AC. Every output between two points is profitable. The total profit is the purple shaded area.

3. Monopolistic Competition: In monopolistically competitive market, demand curve is elastic; AC and MC are the normal U-shaped cost curve. The green shaded area is economic profits; P1abC1 = P1aQ10 - C1bQ10. A monopolistic competitive firm maximizes total profits where MR=MC.

4. Oligopoly: The discontinuity in the marginal revenue curve is the result of the kink in the demand curve. Prices above the kinked are not matched by rival firms, and ones below are matched by rival firms.