Curated by Kelvin Hong, founder of The Economics Tutor. Part of our Free Economics Notes series.
The “Firms and Decisions” topic—commonly referred to as Market Structure—is a major cornerstone of Microeconomics in both the JC A-Level (H2) and IB (Higher Level) syllabus. It is heavily tested in essays and case studies, where examiners expect you to evaluate a firm’s pricing strategies, output decisions, and how market dominance impacts societal welfare.
To master this topic, you must understand how a firm’s cost structure, barriers to entry, and the level of competition dictate its behavior. Select a specific topic below to read our comprehensive revision notes.
1. Foundations of Firm Behavior: Costs, Revenues & Objectives
Objectives of Firms
Firms do not always maximize profit. Explore traditional profit maximization (MC = MR) alongside alternative goals like revenue maximization, market share growth, and managerial utility.
Costs and Revenue Concepts
Understand the foundational math of Microeconomics. Learn the differences between fixed and variable costs, marginal vs. average revenue, and the Law of Diminishing Marginal Returns.
Economies of Scale
Discover how firms lower their Long-Run Average Costs (LRAC) as they expand production through internal economies (like purchasing and technical scale) and external economies.
2. Market Structures & Competition
Barriers to Entry
Understand the artificial and natural hurdles—such as high start-up costs, patents, and brand loyalty—that protect incumbent firms from new market entrants.
Market Structures Overview
A deep dive into the spectrum of competition. Compare the characteristics of Perfect Competition, Monopolistic Competition, Oligopoly, and pure Monopoly.
Competition vs. Collusion – Oligopolistic Markets
Explore the complex strategic choices in an Oligopoly. Learn about mutual interdependence, the Kinked Demand Curve, and the incentives for overt or tacit collusion (Game Theory).
3. Firm Strategies & Market Outcomes
Firm Strategies in Competitive Markets
How do firms survive and thrive? Analyze price and non-price competition strategies, including product differentiation, advertising, and predatory pricing.
Shutdown Conditions
Learn exactly when a loss-making firm should continue operating in the short run versus when it must shut down immediately (when Price falls below Average Variable Cost).
Economic Efficiencies
Evaluate market outcomes. Master the concepts of productive efficiency, allocative efficiency, and dynamic efficiency across different market structures.
4. Market Dominance & Government Intervention
Market Dominance & Monopoly Power (Market Failure)
The ultimate synthesis of Microeconomics. Learn how monopolies and oligopolies create market failure through allocative and productive inefficiency, the unique exception of Natural Monopolies, and how governments intervene using Anti-Trust laws and Price Regulation.
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