2025 Firms and Decisions (2) Market Structure ACJC

© ACJC Economics Dept/2025/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 10 2.3 Differences between Perfect and Imperfect Markets 13 2.4 Level of Competition 16 3 BEHAVIOR OF FIRMS I: PRICE AND OUPUT DECISIONS, TYPES OF PROFITS 18 3.1 Profit Maximising Equilibrium 18 3.2 Types of Profits 20 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 33 3.6 Alternative Objectives of Firms 35 4 BEHAVIOR OF FIRMS II: STRATEGIES TO INCREASE PROFITS 39 4.1 Strategies to Raise Revenue 39 4.2 Strategies to Reduce Costs 48 4.3 Growth Strategies 52 5 PERFORMANCE AND EVALUATION OF MARKET STRUCTURES 57 5.1 Key Concepts and Criteria 57 5.2 Impact on Society’s Welfare Across Market Structures 60 6 GOVERNMENT INTERVENTION FOR MARKET DOMINANCE 67 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/2025/Firms and Decisions (2): Market Structure 2 WHAT IS THIS TOPIC ABOUT? In Part 1 of “Firms and Decisions – Production & Cost,” we learnt that a firm’s primary objective is profit maximisation, making cost concepts essential. In this next part, we explore how varying levels of competition across industries affect firms' revenues. By considering both revenue and costs, firms are better positioned to maximise profits. We will also examine cases where firms may pursue alternative objectives due to specific constraints or exceptions. 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) • Imperfect markets: o Monopoly (one firm with 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 firms determine their equilibrium output and price? • How do they compete with other firms in the same indust