COST CONDITIONS

CONSTANT COST CONDITION

When the supply price remains the same

for all levels of outputs, and also as one in
which the prices of factor inputs do not
change an output changes.
INCREASING COST CONDITION

It is one where the supply price

increases as the output increased,
and where the prices of the factor
inputs vary directly as the output in
increased.
DECREASING COST CONDITION

The supply behaves inversely with

output that is, as output increases
(decreases) the supply price
decreases (increases).

.
 CONDITIONS OF
PURE COMPETITIONS
Pure competition
A market situation where there is a large number of
independent sellers offering identical products. It
means it is a term for an industry where competition
is stagnant and relatively non-competitive.
Companies within the pure competition category
have little control of price or distribution of products.
Purely competitive markets are used as the
benchmark to evaluate market performance. It is
generally believed that market structure influences
the behaviour and performance of agents with in the
market. Structure influences conduct which, in turn
affects performance.
In pure competition involves:

large number of buyers and sellers

Homogenous product
Free entry and exist
Price takers
CHARACTERISTICS

1. Large number of buyers and sellers:

There is a large number of buyers and

sellers acting independently such that
no one buyers or sellers will affect the
price.
CHARACTERISTICS

2. Homogenous products:

The products offered for sale should

be sufficiently alike or homogeneous
for buyers to feel free to choose the
products offered by sellers.
CHARACTERISTICS

3. Free entry and exit from industry:

There is freedom of entry and exit to

the market.
CHARACTERISTICS

4. Price taker:

There is knowledge of market(s)

condition for both buyers and sellers
in terms of prices, quantities and
qualities.
Individual firm exert no significant
control over the market price. Each
firms quantity is too small to affect the
market supply or price.

Competitive are price takers, they

cannot affect the price, but adjust to
it.
None of the sellers can ask for higher
price.
None will sell at a lower price.
MONOPOLY
MONOPOLY

It is a type of market structure in

which a single large producer is
selling a product which is perfectly
differentiated from all other products
in the market.
Two basic characteristics:

1. One big seller- its not just the seller

but instead the firm is the No. 1 in
the industry; unless the firm is the
only one in the industry.

2. The product is unique- the products

of the monopolist is unique which
makes it No.1 in the industry
Can the monopolist peg the price he
wants?

No, because there is the existence of

substitutes, government regulation of
prices and the fear of the markets
low demand of their products.
Monopolistic competition

This is characterized as a market in

which there are enough sellers that
act independently of the others and it
applies the analysis of differentiated
products. Examples of this are
restaurants, hotels, hair salons.
 The theory of monopolistic
competition has been most useful so
far in analysing two situations:
Product Differentiation and
Geographic Differentiation.
Characteristics of monopolistic
competition:

These firms sell differentiated

products.
There is freedom of entry and exit to
the market. New firms can enter
freely and established firms can exit.
Firm exert a limited degree of control
over their price.
OLIGOPOLY
Facts/Details

Oligopoly is a market situation where

there are few firms offering
standardized or differentiated goods
and services.

It is a market structure in which few

sellers dominate the sales of a
product and where entry of new
sellers is difficult or impossible.
How does an Oligopoly arise? As with
monopoly, there are two (2) ways;
naturally and by regulation.
An Oligopoly is an industry
characterized by:

The relatively small number of firms

in the industry.

Moderate to high barriers entry or in

other words, obstacles to entry are
large and foreboding.
 The production can be either
homogenous (aluminium or steel) or
differentiated products (automobile
or breakfast cereals).

Price researching since oligopolies is

able to exercise some control over
price.

Recognize mutual interdependence.

PURE OR PERFECT OLIGOPOLY

exists when the product is

homogeneous or identical, so that
when one firm lowers its price by a
certain amount, the other firms follow
suit.
IMPERFECT OR DIFFERENT OLIGOPOLY

is that market situation where the

product are also differentiated that a
price cut by one firm does not
necessarily extract a price cut by the
other competitors.
Further classification of Oligopoly:

Complex Oligopoly exists when mutual

interdependence is "complete" because
the products of the competing firms are
identical.
Further classification of Oligopoly:

Partial Oligopoly if mutual

interdependence among the business
firms is not strong enough for the group
to maximize profits.
INTERDEPENDENT PRICES
This degree of interdependence may
either be positive or negative and it is
important to know the price behaviour
for the following reasons:

1. It provides insights into the

interrelationship of the prices of
various commodities.

2. It furnishes the government an

analytical tool of reference.
Two (2) Classifications An Example

Positive Interdependence gasoline

increases and basic necessities like
rice and other household items
increase.

Negative Interdependence
detergent soap like Ariel and Tide
increase then other prices of other
Joint Demand (Complementary Goods)

Acquiring and using one commodity

would somehow require the
acquisition or use of another
commodity.
Substitute Goods

When two or more substitutes are

available, the consumers generally tend
to choose the cheapest, provided that
such would give him more or less the
same utility as the original article.

Complete Substitution when one

commodity is entirely substituted by
another commodity.
 Partial Substitution when two or
more commodities can replace the
use of an original commodity,

Potential Substitution when a

commodity may not have suitable
substitute for the present, but there
may be materials which can be
developed in its place in the future, if
circumstances warrant its production.