Market structures and equilibria

Market structure is defined by the number of firms, product differentiation and barriers to entry, and it decides how price is set. Under perfect competition each firm is a price taker and produces where price equals marginal cost. A monopolist faces the whole market demand, so it produces where marginal revenue equals marginal cost and charges the higher price read off the demand curve. Worked example: with demand P = 100 - 2Q and marginal cost 20, a monopolist sets MR = 100 - 4Q = 20, giving Q = 20 and P = 60, while perfect competition gives P = 20 and Q = 40.