ABSTRACT
In order to understand the precise relationship between output, revenue and price, a firm has to know the structure of the market or industry into which it is selling its product. There are various market structures. At one extreme, there is a monopoly where one producer dominates the market and controls the price and output decisions. At the other extreme, both buyers and sellers correctly assume that they cannot affect market price – this market structure is known as perfect competition. Most firms involved in construction are engaged in market structures between these two theoretical extremes. In the language of textbook economics, they are involved in imperfectly competitive markets – where the clients and contractors have to take into account how their individual actions will affect the market price. (Here, it might be useful to review Key Points 6.1.) We shall examine these real-life scenarios in more detail once we have set up a reference point for the discussion.
