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Different Market Structures

Economics notes

Different Market Structures

➡️ Supernormal profit is a profit that is higher than the normal rate of return for a given industry or sector. It is usually achieved by a firm that has a competitive advantage over its rivals.

➡️ Subnormal profit is a profit that is lower than the normal rate of return for a given industry or sector. It is usually achieved by a firm that has a disadvantage compared to its rivals.

➡️ The calculation of supernormal and subnormal profit involves analyzing the costs and revenues of a firm in comparison to the industry average. This helps to determine whether the firm is making more or less than the industry average.

What are the characteristics of a perfectly competitive market structure?

A perfectly competitive market structure is characterized by a large number of buyers and sellers, homogeneous products, free entry and exit, perfect information, and no market power. In this market structure, firms are price takers and cannot influence the market price.

How does a monopolistic market structure differ from a perfectly competitive market structure?

In a monopolistic market structure, there is only one seller or producer of a product or service, and there are no close substitutes. The seller has market power and can influence the price of the product. In contrast, in a perfectly competitive market structure, there are many sellers and buyers, and the products are homogeneous, so no single seller can influence the market price.

What are the advantages and disadvantages of an oligopolistic market structure?

An oligopolistic market structure is characterized by a small number of large firms dominating the market. The advantages of this market structure include economies of scale, high barriers to entry, and the ability to invest in research and development. However, the disadvantages include the potential for collusion and anti-competitive behavior, reduced consumer choice, and the possibility of price fixing.

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