Market
Market is a mechanism through which buyers and sellers are brought together
to exchange goods and services, either directly or indirectly.
Classification of Market
Markets can be broadly classified into the following types:
1. Perfect Competition
Perfect competition is a market structure in which there are a large number
of buyers and sellers selling a homogeneous product at a uniform price.
Main Features
- Large number of buyers and sellers
- Homogeneous product
- Uniform price
- Free entry and exit
- Perfect knowledge of the market
2. Imperfect Competition
Imperfect competition is the market structure that lies between perfect
competition and monopoly. In this market, individual firms have some control
over price.
Types of Imperfect Competition
i. Monopoly
Monopoly is a market structure in which there is a single seller of a product,
there are no close substitutes, and there are strong barriers to entry.
Features
- Single seller
- No close substitutes
- Strong barriers to entry
- Price maker
ii. Monopolistic Competition
Monopolistic competition refers to a market structure in which there are many
sellers producing differentiated products.
Features
- Many buyers and sellers
- Product differentiation
- Some control over price
- Free entry and exit
iii. Oligopoly
Oligopoly refers to a market structure where there are a few sellers and these
sellers together hold a large share of the market.
Features
- Few sellers
- Interdependence among firms
- Price rigidity
- Barriers to entry
Revenue
Revenue is the money received by a firm from the sale of its product.
It is also known as sales receipts or money income.
Types of Revenue
1. Total Revenue (TR)
TR = P × Q
- P = Price per unit
- Q = Quantity sold
2. Average Revenue (AR)
AR = TR / Q
Since, TR = P × Q
AR = P
Thus, average revenue is equal to price.
3. Marginal Revenue (MR)
Marginal revenue is the addition to total revenue resulting from the sale of
one additional unit of output.
MR = ΔTR / ΔQ
Or,
MR = TRn − TRn−1
Quick Exam Points
- Perfect competition → Price taker
- Monopoly → Price maker
- AR curve = Demand curve
- MR shows change in total revenue