ECO 365

Industries consist of all firms making similar or identical products. Their market structure depends on the number of firms in the industry and the ways in which they compete. Our group discussed four basic market structures.
The first market structure is perfect competition. Perfect competition occurs when numerous small firms are in competition with each other. Businesses in a competitive industry produce the socially optimal output level at the absolute minimal possible cost per unit.
Another type of market structure is known as a monopoly. A monopoly is a business that basically has no competitors in its industry. They reduce output to drive up prices and increase profit. In doing so, they produce less than the socially optimal output level and produces at higher cost than competitive businesses. One example of a monopoly would be the existence of only one option in utilities in any particular region.
The third type of market structure is known as an oligopoly. This is a type of industry that has very few firms, and if they collude they can reduce output and drive up profits much like a monopoly does. This doesn’t always work though because a lot of times businesses will not honor their agreement with their competing industries. This will make the firms end up competing against each other for consumers business. An example of this type of structure would be the airline industry. This type of situation often benefits consumers.
The fourth type of market structure is a monopolistic competition. In this type of structure industries have slightly different products, but still compete against one another. One example of this would be restaurants, and how they all serve food, but different types and at different prices in different locations. Consumers also benefit from the varieties in this type of market structure. How do markets evaluate the