ACJC Firms and Decisions (2) Market Structure

© ACJC Economics Dept/2023/Firms and Decisions (2): Market Structure 1 ANGLO-CHINESE JUNIOR COLLEGE JC1 Economics H2 Firms and Decisions (2) MARKET STRUCTURE Section Content Page 1 PRIMARY OBJECTIVE: PROFIT MAXIMISATION (RECAP) 5 1.1 Revenue and Cost Concept 5 1.2 Profit Concepts 5 2 CHARACTERISTICS OF MARKET STRUCTURES 6 2.1 Characteristics of Market Structures 6 2.2 Types of Market Structures and their Characteristics 11 2.3 Differences between Perfect and Imperfect Markets 12 2.4 Level of Competition 15 3 BEHAVIOR OF FIRMS I: PRICE AND OUPUT DECISIONS, TYPES OF PROFITS 17 3.1 Profit Maximising Equilibrium 18 3.2 Types of Profits 19 3.3 Equilibrium of a Firm with Imperfect Information (Cost-Plus Pricing) 28 3.4 Price and Output Decisions for Oligopolies 29 3.5 Price and Output Decisions in Contestable Markets 31 4 BEHAVIOR OF FIRMS II: STRATEGIES TO INCREASE PROFITS 33 4.1 Strategies to Raise Revenue 33 4.2 Strategies to Reduce Costs 39 4.3 Growth Strategies 41 5 PERFORMANCE AND EVALUATION OF MARKET STRUCTURES 45 5.1 Key Concepts and Criteria 45 5.2 Impact on Society’s Welfare Across Market Structures 48 6 GOVERNMENT INTERVENTION FOR MARKET DOMINANCE 55 Reference Text (Optional): 1. Case, Fair, Oster. Principles of Economics, Special Edition for ACJC, Pearson, 2013. Chapters 12 - 15. 2. John Sloman, Economics, 8th Edition, Prentice Hall. Chapters 6-8. 3. Mankiw, Quah & Wilson. Principles of Economics, An Asian Edition, CENGAGE Learning. Chapters 14-17.

© ACJC Economics Dept/2023/Firms and Decisions (2): Market Structure 2 WHAT IS THIS TOPIC ABOUT? In part 1 of this topic, “Firms and Decisions (1) – Production & Cost”, we have learned that firms have a chief purpose of maximising profits. However, there are sometimes exceptions due to constraints or alternative objectives. Costs concepts are therefore an essential consideration for firms to achieve their objectives. Moving into the next part of Firms and Decisions, we will learn ho w firms in different industries face different level of competition, impacting the amount of revenue earned. Optimising both revenue and costs, firms will more likely achieve their overall aim of maximum profit. In “Firms and Decisions (2) – Market Structure”, we will examine the characteristics, the behaviour as well as evaluate the performance of firms in both perfect and imperfect markets. You will learn about these four market structures:  Perfect competition (many small firms, each without market power/dominance)  Imperfect markets: o Monopoly (one firm has huge market power) o Oligopoly (few big firms dominating the market, each with strong market power but firms are inter-dependent) o Monopolistic competition (many small firms, each with weak market power) In understanding and evaluating the behaviour and performance of such firms, the focus will be on the following key questions:  How do firm