The Firm and Market Structures

How a firm picks its profit-maximizing output, where it breaks even or should shut down, how economies and diseconomies of scale shape long-run costs, how the four market structures differ, how prices and output are set under monopolistic competition and oligopoly, and how concentration measures are used (and misused) to identify market structure.

1. 1. Revenue, economic profit and the MR = MC ruleEvery firm maximizes profit by producing where marginal revenue equals a rising marginal cost; what differs across markets is whether marginal revenue equals the price or falls below it.Video · 6 minFree12 min
2. 2. Breakeven, shutdown and exit decisionsA firm breaks even where price equals average total cost, keeps operating in the short run as long as price covers average variable cost, and exits in the long run if it cannot cover total cost.Video · 5 min13 min
3. 3. Short-run and long-run costs: economies and diseconomies of scaleIn the long run a firm can choose its plant size, so its long-run average cost curve is the envelope of all short-run curves; where it slopes down there are economies of scale, where it slopes up there are diseconomies.12 min
4. 4. The four market structures and what defines themMarket structures run from perfect competition through monopolistic competition and oligopoly to monopoly, and five features (number of sellers, differentiation, pricing power, entry barriers and non-price competition) tell them apart.11 min
5. 5. Monopolistic competition: price, output and the long runA monopolistically competitive firm sets output where MR = MC and charges what its downward-sloping demand allows; easy entry then erodes any economic profit, leaving zero profit at a price above minimum average cost.12 min
6. 6. Oligopoly: kinked demand, Cournot, Stackelberg and price leadershipIn an oligopoly each firm's best price and output depend on how it expects rivals to react, so different assumptions about rivals (kinked demand, Cournot, Stackelberg, dominant firm) give different outcomes.Video · 6 min14 min
7. 7. Oligopoly strategy: Nash equilibrium, collusion and the long runWhen oligopolists act in their own interest, they settle in a Nash equilibrium that usually leaves joint profit on the table, which makes collusion tempting but hard to sustain, and over time entry erodes even dominant positions.Video · 6 min13 min
8. 8. Identifying market structure: elasticity, concentration ratios and HHIMarket power is best judged by estimating demand elasticity, but because that is hard, analysts and regulators use the concentration ratio and the Herfindahl-Hirschman index, both of which ignore the threat of entry.11 min
9. 9. Integrated cases: reading a market from the dataA market-structure case hands you sales, a demand line and a cost line, and expects you to chain concentration, leader pricing, the shutdown test and classification without losing the thread.15 min