Comparing Market Structures

Now let's take a look at the graphs for the four market structures.

Perfect Competition Graph

Perfect competition graphs shows how demand is constant at a set price. Producers in this industry are price takers which means they must sell their products at the price the market sets. The market price is determined by thousands, or even millions of individuals. This type of market allows producers to achieve maximum allocative and productive efficiency. We can see this by looking at the graph and noting that the average and marginal costs are in line with the price and quantity.

Monopolistic Competition Graph

The graphs below show a monopolistically competitive market in both the short and and long run. In the short run, we can see that an economic profit (or normal profit) is earned but in the long run, only normal profits are earned. The graphs also show that the demand (represented by AR in these graphs) is somewhat flexible to price and producers do have some control over what price they choose to sell their products at. From looking at these graphs, we can determine the profit maximising quantity and price which is where Marginal Revenue (MR) meets Marginal Costs (MC). The break even points on these graphs is where Average Costs (AC) meets Average Revenue (AR).

Oligopoly Graph

The graph below shows what is called a kinked demand curve and can be seen in an oligopoly. This market is generally made up of a few large firms with similar products. Producers in this type of market are price setters which means they have moderate to substantial control over their market price. The kinked demand curve shows both elastic and inelastic sections as well as the best price and quantity to produce for maximum profits.

Monopoly Graph

This graph is very similar to the monopolistically competitive graph. One of the main differences between a monopolistically competitive firm and a monopoly is that a monopoly can earn economic profits in the long run. Once again, we can determine the profit maximising quantity and price which is where Marginal Revenue (MR) meets Marginal Costs (MC).