Question

What impact do the different types of market structure have on supply and demand?

Answer 1

Perfectly Competitive Market: Price and quantity are determined through the demand and supply forces prevailing in the market. For individual firm demand curve is horizonal or perfectly elastic. If firm earns supernormal profit in short run, then more firms enter the market and increase supply. Rise in supply increase equilibrium quantity and reduces price level. Fall in price level increases demand.

On other extreme, monopoly firm decides price and quantity according to the MR and MC of firm. It tries to maximize profit by creating deadweightloss. Monopoly can refuse to serve customers by setting price higher.