Economics I

Reading 13. The Firm and Market Structures

Learning Outcome Statements

a. describe characteristics of perfect competition, monopolistic competition, oligopoly, and pure monopoly;

CFA Curriculum, 2020, Volume 2

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Subject 1. Characteristics of Different Market Structures

A financial analyst must understand the characteristics of market structures to better forecast a firm's future profit stream.

We focus on those characteristics that affect the nature of competition and pricing. They are:

  • The number of firms (including the scale and extent of foreign competition).
  • The extent of product differentiation (which affects cross-price elasticity of demand).
  • The pricing power of seller(s). Can a firm influence the market price?
  • Barriers to entry. Exit costs should also be considered.
  • Non-price competition such as product differentiation.

The characteristics of each market structure will be discussed in subsequent subjects of this reading.

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The most difficult section in CFA