{"id":818,"date":"2019-10-10T20:04:00","date_gmt":"2019-10-10T20:04:00","guid":{"rendered":"https:\/\/analystprep.com\/cfa-level-1-exam\/?p=818"},"modified":"2026-01-21T16:50:21","modified_gmt":"2026-01-21T16:50:21","slug":"market-structure-within-which-a-firm-operates","status":"publish","type":"post","link":"https:\/\/analystprep.com\/cfa-level-1-exam\/economics\/market-structure-within-which-a-firm-operates\/","title":{"rendered":"Type of Market Structure Within Which a Firm Operates"},"content":{"rendered":"\n<script type=\"application\/ld+json\">\n{\n  \"@context\": \"https:\/\/schema.org\",\n  \"@type\": \"QAPage\",\n  \"mainEntity\": {\n    \"@type\": \"Question\",\n    \"name\": \"Market structure with only one buyer\",\n    \"text\": \"Which of the following best describes a market structure with only one buyer?\\n\\nA. Monopoly\\n\\nB. Monopolistic competitive market\\n\\nC. Monopsony\",\n    \"answerCount\": 3,\n    \"acceptedAnswer\": {\n      \"@type\": \"Answer\",\n      \"text\": \"C. Monopsony.\\n\\nA monopsony is a market structure characterized by the presence of a single buyer. In contrast, a monopoly has one seller, and a monopolistically competitive market has many buyers and many sellers.\"\n    },\n    \"suggestedAnswer\": [\n      {\n        \"@type\": \"Answer\",\n        \"text\": \"A. Monopoly\"\n      },\n      {\n        \"@type\": \"Answer\",\n        \"text\": \"B. Monopolistic competitive market\"\n      }\n    ]\n  }\n}\n<\/script>\n<script type=\"application\/ld+json\">\n{\n  \"@context\": \"https:\/\/schema.org\",\n  \"@type\": \"ImageObject\",\n  \"@id\": \"https:\/\/analystprep.com\/cfa-level-1-exam\/images\/perfectly-elastic-demand\",\n  \"url\": \"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-content\/uploads\/2019\/10\/15m-h.png\",\n  \"contentUrl\": \"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-content\/uploads\/2019\/10\/15m-h.png\",\n  \"caption\": \"Perfectly elastic demand\",\n  \"width\": 1611,\n  \"height\": 1418,\n  \"copyrightNotice\": \"\u00a9 2024 AnalystPrep\",\n  \"acquireLicensePage\": \"https:\/\/analystprep.com\/license-info\",\n  \"creditText\": \"AnalystPrep Design Team\",\n  \"creator\": {\n    \"@type\": \"Organization\",\n    \"name\": \"AnalystPrep\",\n    \"url\": \"https:\/\/analystprep.com\/\"\n  }\n}\n<\/script>\n\n<script type=\"application\/ld+json\">\n{\n  \"@context\": \"https:\/\/schema.org\",\n  \"@type\": \"ImageObject\",\n  \"@id\": \"https:\/\/analystprep.com\/cfa-level-1-exam\/images\/perfectly-inelastic-demand\",\n  \"url\": \"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-content\/uploads\/2019\/10\/15n-h.png\",\n  \"contentUrl\": \"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-content\/uploads\/2019\/10\/15n-h.png\",\n  \"caption\": \"Perfectly inelastic demand\",\n  \"width\": 1611,\n  \"height\": 1418,\n  \"copyrightNotice\": \"\u00a9 2024 AnalystPrep\",\n  \"acquireLicensePage\": \"https:\/\/analystprep.com\/license-info\",\n  \"creditText\": \"AnalystPrep Design Team\",\n  \"creator\": {\n    \"@type\": \"Organization\",\n    \"name\": \"AnalystPrep\",\n    \"url\": \"https:\/\/analystprep.com\/\"\n  }\n}\n<\/script>\n\n<script type=\"application\/ld+json\">\n{\n  \"@context\": \"https:\/\/schema.org\",\n  \"@type\": \"VideoObject\",\n  \"name\": \"The Firm and Market Structures (2022 Level I CFA\u00ae Exam \u2013 Reading 9)\",\n  \"description\": \"This video lesson covers the CFA Level 1 topic on The Firm and Market Structures, explaining the characteristics, pricing behavior, and long-run equilibrium of monopoly, oligopoly, monopolistic competition, and perfect competition. It also explores marginal analysis, market concentration metrics (HHI and CR), and supply elasticity under different structures.\",\n  \"uploadDate\": \"2019-06-11T00:00:00+00:00\",\n  \"thumbnailUrl\": \"https:\/\/img.youtube.com\/vi\/PBMOxv2e3QU\/maxresdefault.jpg\",\n  \"contentUrl\": \"https:\/\/www.youtube.com\/watch?v=PBMOxv2e3QU\",\n  \"embedUrl\": \"https:\/\/www.youtube.com\/embed\/PBMOxv2e3QU\",\n  \"duration\": \"PT21M26S\"\n}\n<\/script>\n\n\n\n<iframe loading=\"lazy\" width=\"560\" height=\"315\" src=\"https:\/\/www.youtube.com\/embed\/PBMOxv2e3QU?si=jye1bPi__-vU0spG\" title=\"YouTube video player\" frameborder=\"0\" allow=\"accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share\" referrerpolicy=\"strict-origin-when-cross-origin\" allowfullscreen><\/iframe>\n\n\n<p>Economists focus on the nature of competition and the pricing model in a particular market when describing a market structure. Since firms price their products based on the market structure, pricing, therefore, depends on competition. A market structure is often seen as the number of firms that produce identical goods or services in a market.<\/p>\n<h2><strong>Factors That Influence the Behavior of Individual Firms<\/strong><\/h2>\n<p>The structure of a market has a big influence on the behavior of individual firms. This influence mainly revolves around pricing.<\/p>\n<p>The market structure also affects how different goods are supplied, as well as market entry barriers. Remember that market entry barriers are high for monopolies but non-existent in perfect competition.<\/p>\n<p>Efficiency also has some influence on the behavior of different market structures. Firms under perfect competition exhibit the highest efficiency level, whereas monopolies are the least efficient from an economic standpoint.<\/p>\n<h2><strong>Features for Identifying a Market Structure<\/strong><\/h2>\n<h4>Number of Firms Under a Given Market<\/h4>\n<p>In a <strong>monopoly<\/strong>, there is only one producer in an entire market. An <strong>oligopoly<\/strong> will exist in a market where several firms produce the same goods. Besides, a <strong>duopoly<\/strong> is made up of only two firms in a market. And lastly, for a <strong>monopsony<\/strong>, there exists only one buyer. Most monopsonies tend to be government-based. A good example is the military.<\/p>\n<h4>The Concentration Ratio of a Firm or Company<\/h4>\n<p>The\u00a0concentration ratio lies between zero (for\u00a0perfect competition) and 100 (for monopolies).<\/p>\n<h4>The Amount and Nature of Market Costs<\/h4>\n<p>This feature covers the economies of scale and sunk costs (costs incurred and which the firms cannot recover) if any.<\/p>\n<h4>The Degree of Vertical Integration<\/h4>\n<p>Vertical integration refers to how different production and distribution stages are combined and put under the management of one enterprise. This is often seen in a monopoly \u2013 the manufacturing firm is also the distributor, the retailer, and the one responsible for after-sales services.<\/p>\n<h4>The Level of Product Differentiation<\/h4>\n<p>The existence of relatively large firms selling differentiated products is referred to as monopolistic competition. On the other hand, only a few sellers selling basically the same product, such as in the oil industry, are in oligopolistic competition.<\/p>\n<h4>Demand Elasticity<\/h4>\n<p>A market exhibiting inelasticity in demand entails firms in a monopoly market. On the other hand, when there is a perfectly elastic demand curve, firms operating in such a market are in perfect competition with each other.<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter size-full wp-image-10158\" src=\"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-content\/uploads\/2019\/10\/15m-h.png\" alt=\"perfectly-elastic-demand\" width=\"1611\" height=\"1418\" srcset=\"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-content\/uploads\/2019\/10\/15m-h.png 1611w, https:\/\/analystprep.com\/cfa-level-1-exam\/wp-content\/uploads\/2019\/10\/15m-h-300x264.png 300w, https:\/\/analystprep.com\/cfa-level-1-exam\/wp-content\/uploads\/2019\/10\/15m-h-768x676.png 768w, https:\/\/analystprep.com\/cfa-level-1-exam\/wp-content\/uploads\/2019\/10\/15m-h-1024x901.png 1024w, https:\/\/analystprep.com\/cfa-level-1-exam\/wp-content\/uploads\/2019\/10\/15m-h-400x352.png 400w\" sizes=\"auto, (max-width: 1611px) 100vw, 1611px\" \/><\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter size-full wp-image-10152\" src=\"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-content\/uploads\/2019\/10\/15n-h.png\" alt=\"perfectly-inelastic-demand\" width=\"1611\" height=\"1418\" srcset=\"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-content\/uploads\/2019\/10\/15n-h.png 1611w, https:\/\/analystprep.com\/cfa-level-1-exam\/wp-content\/uploads\/2019\/10\/15n-h-300x264.png 300w, https:\/\/analystprep.com\/cfa-level-1-exam\/wp-content\/uploads\/2019\/10\/15n-h-768x676.png 768w, https:\/\/analystprep.com\/cfa-level-1-exam\/wp-content\/uploads\/2019\/10\/15n-h-1024x901.png 1024w, https:\/\/analystprep.com\/cfa-level-1-exam\/wp-content\/uploads\/2019\/10\/15n-h-400x352.png 400w\" sizes=\"auto, (max-width: 1611px) 100vw, 1611px\" \/><\/p>\n<blockquote>\n<h2><strong>Question<\/strong><\/h2>\n<p>Which of the following <em>best describes<\/em> a market structure with only one buyer?<\/p>\n<p>A. Monopoly<\/p>\n<p>B. Monopolistic competitive market<\/p>\n<p>C.\u00a0Monopsony<\/p>\n<p><strong>Solution<\/strong><\/p>\n<p>The correct answer is C.<\/p>\n<p>A monopsony has only one buyer.<\/p>\n<p>Option A is incorrect. A monopoly has one seller but many buyers.<\/p>\n<p>Option B is incorrect. A monopolistic competitive market has many buyers and fairly many sellers.<\/p>\n<\/blockquote>\n<div class=\"notes_inv\"><hr \/>\n<p><a href=\"https:\/\/analystprep.com\/cfa-level-1-exam\/economics\/learning-sessions-curriculum-economics\/\"><em>Economics &#8211; Learning Sessions<\/em><\/a><\/p>\n<\/div>","protected":false},"excerpt":{"rendered":"<p>Economists focus on the nature of competition and the pricing model in a particular market when describing a market structure. Since firms price their products based on the market structure, pricing, therefore, depends on competition. A market structure is often&#8230;<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[4],"tags":[],"class_list":["post-818","post","type-post","status-publish","format-standard","hentry","category-economics","blog-post","no-post-thumbnail","animate"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v26.9 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Market Structures in Economics | CFA Level 1 - AnalystPrep<\/title>\n<meta name=\"description\" content=\"Learn about different market structures, their features, and how firms operate within monopoly, oligopoly, and competitive markets.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/analystprep.com\/cfa-level-1-exam\/economics\/market-structure-within-which-a-firm-operates\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Market Structures in Economics | CFA Level 1 - 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