Chapter 08: Market Structures
Explainer, notes, worksheet and data.
Explainer
Here are some of the things you'll learn in this chapter
- we'll describe the main features of each market structure and evaluate the benefits and drawbacks of each
- Graphing and explaining (usings SPECS) the short and long run production position of individual firms in each market
- you'll have to understand why the production position changes from one market structure to another
- calculating and measuring the level of competition in a given market
Core ideas
Market structure is really about competition vs market power. As competition falls, firms gain more ability to influence price/output — which can raise prices, restrict output and reduce consumer welfare.
You’ll use diagrams (AR/MR/MC/AC) to compare outcomes like supernormal profit, normal profit, allocative efficiency (P = MC) and productive efficiency (min AC).
Exam focus
- diagram-heavy: PC vs monopoly comparison, profit rectangles, efficiency labels
- oligopoly: kinked demand + price rigidity, collusion/price leadership/limit pricing
- data skills: calculate an HHI from market shares and evaluate consumer impacts
Interactive: Market Structures — AR, MR & MC
Toggle between market structures. The oligopoly mode demonstrates the kinked demand curve and how it explains price rigidity — a price stuck at P* even when costs change.
Perfect Competition: AR=MR=P (horizontal). Monopolistic Competition: downward AR, SR profit → LR entry erodes it. Oligopoly: kinked demand creates an MR gap — MC can shift within this gap without changing the profit-maximising price (price rigidity). Monopoly: highest price, lowest output, DWL vs competition.