In this section:

• How Businesses Grow

• Internal v External Growth

• Mergers and Takeovers

In this section:

• Law of Diminishing Returns

• Short Run Cost Curves

• Relationship between MC and Market Supply Curve

• Long Run Cost Curves

In this section:

• How we determine the revenue curves for Price Makers and Price Takers

• The Relationship between MR & AR

• Profits using TR-TC

• Profits using MC=MR

In this section:

We will look at the possible objectives of firms and why the operate at different levels based on their objectives. 

• MC=MR

• MR=O

• ATC=AR

• Alteranative theories of the firm

Assumptions of Perfect Competition

• A large Number of Firms in the Market

• Homogenous Goods causing the firm to take the market price

• No barriers to enter or exit

• Perfect Knowledge

Although a highly unrealistic market structure, it helps us understand the importance of competition to achieve market efficiency and how this can help achieve allocative efficiency. The closest markets to show characteristics of perfect competition would be: commodities such as gold or oil, agricultural commodities such as rice, wheat or foreign exchange markets. Each firm in these markets is relatively small and therefore limited power to influence the price and instead ,the market prices tend to be determined by market forces.

Assumptions of Monopolistic Competition

• A large number of small or medium sized firms

• No Barriers to entry

• Product Differentiation giving firm some control over the price

Similar to perfect competition in the sense of a large number of firms, monopolistic differs because it is able to differentiate its products. As such, it is able to set the price it charges for its goods. We can see Monopolistic Competition in markets such as clothing, small restaurants or furniture industries. The firm has some power to set its prices but this is limited by the fact there are a large number of firms in the market producing similar (but not close substitute) goods.

Assumptions of Oligopolies

• A small number of Large Firms

• Products are either differentiated or homogenous

• Firms are Interdependent

• High Barriers to Enter and Exit the Market

Due to there being a small number of large firms, Oligopolies have considerable power over the market. These firms produce either homogenous (oil) or differentiated goods (cars). Due to the small number of large firms and high barriers to entry, there is sometimes the incentive for Oligopolistic firms to collude and form a cartel.

Assumptions of Monopolies

• One dominant firm in the market

• Sells unique good or service with no close substitutes

• High Barriers to Enter and Exit the Market

Monopolies have incredibly high market power. Being the sole provider or dominant provider of a good provides the monopoly with the ability to set the price of a good. Therefore, monopolies in private markets can bring negative effects to society as a whole. However, due to the economies of scale a large firm can benefit from, some natural monopolies exist. For example, Public utilities such as water, electricity or postal services may be better as a natural monopoly to lower costs and therefore lower prices for consumers. 

Governments may intervene in markets to prevent firms with significant market power from distorting competition and harming consumers. This can include measures such as antitrust laws to prevent monopolies and collusion, price regulation to stop firms from charging excessively high prices, and policies that encourage competition, such as breaking up dominant firms or lowering barriers to entry. The aim is to promote efficiency, protect consumer welfare, and reduce instances of market failure caused by the abuse of market power.

Third-degree price discrimination occurs when a firm charges different prices to different groups of consumers for the same product, based on differences in their price elasticity of demand. Common examples include student or pensioner discounts, or regional pricing. This strategy allows firms to increase revenue by capturing more consumer surplus. While it can lead to greater output than uniform pricing, its impact on overall welfare depends on how the firm segments the market and whether the pricing remains fair and accessible.