Question

Market structures and costs of productions: Define market structures and costs of production and how they operate in an economy.

Answer 1

Market structure refers to the structure of the market, ie how many firms it has, how much output is produces, what is its purpose of operating, whether it works for social welfare or profit maximisation etc.

Costs of production capture all types of costs involved in production activities. These include sunk costs, fixed costs, variable costs etc.

A market structure with a well defined cost of production function helps in making firms decide what , when and how to produce.

For eg a perfectly competitive firm produces at the point P = MC while a monopolist produces at the point MR = MC