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Features of Market Structures

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Perfect Competition
Perfect competition industry/market has very large number of small firms because there are no barriers to entry and exit. As all the firms produce identical goods, the goods are perfect substitutes of each other. This causes the demand for the goods to be perfectly price elastic and the demand curve or average revenue curve to be almost horizontal. Consequently, the firms have are called price takers because they have no market power. Market power is defined as the ability of a firm to change the price of a particular good in the market by changing the quantity output of that particular good. There is also perfect information and perfect mobility of resources in the perfect competition market.
Monopolistic Competition
Monopolistic competition market/industry has large number of firms because there are no barriers to entry and exit. As the firms produce goods that are differentiated such as books, the goods are close substitutes to each other. This causes the demand for the goods to be price elastic. Consequently, the firms are called price setters because they have some market power.
Oligopoly
Oligopoly market/industry has small number of large firms because there are high barriers to entry and exit. As the firms produce goods that may be differentiated such as breakfast cereals or homogenous such as oil, the goods have few close substitutes. This causes the demand for the goods produced by the oligopoly firms to be price inelastic. Consequently, oligopoly firms are called price setters because they have strong market power.

Monopoly
Monopoly industry/market has only one seller or one dominant firm because there are significant barriers to entry and exit. As there is only one dominant firm that produces the particular good, there will be no close substitutes to that particular good. This causes the demand for the good produced by the…...

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