1. A perfectly competitive market is a hypothetical market structure where the firms are producing homogeneous products. The firms are the price taker, and no individual firm can influence the price in the market. The market allows free entry and exit of the firms in the long run.

2. Under an oligopoly market structure, there are a small number of large firms dominating the market. Some of the characteristics of the oligopoly market are-

(a) The firms are interdependent on each other. The pricing and output decision of one form will affect the pricing and output decisions of other firms in the market.

(b) There are barriers to entry in the industry in the long run. The firms try to prevent the entry of new firms by reducing their prices so that the new entrant not be able to survive in the market.

(c)The products in the oligopoly form of the market may be homogeneous or differentiated. The firms which are selling homogeneous products are known as pure oligopoly.

3. The short-run average total cost curve is the sum of the average fixed cost and average variable cost. The short-run average total cost curve is U shaped because of the law of variable proportion. It means that when more and more variable factors are combined with fixed factors, then initially the total output will increase at an increasing rate, then increase at a diminishing rate and later declines. On the other hand, the long-run total average cost curve is L shaped because of economies of scale. It means initially when the output is increased by increasing the plant size and variable factors, the per unit cost falls rapidly. The cost does not rise even at a very large scale of production because the production economies offset the managerial (variable cost) diseconomies.

4. Cross price elasticity of demand refers to the responsiveness in quantity demanded of one good when the price of other good changes. It can be of three types- substitute goods, complementary goods, and unrelated goods. Cross price elasticity for substitute goods is always positive because the quantity demand for one good will increase when the price of substitute good will rise. On the contrary, cross-price elasticity for complementary goods is negative. It is because when the price of compliment good falls, the quantity demanded of other good will increase. The cross elasticity of unrelated good is zero.

Income elasticity of demand refers to the change in quantity demanded due to a change in income. Normal goods have a positive income elasticity because when the income increases, the quantity demanded of normal good will rise. On the other hand, inferior goods have negative income elasticity because when the income increases, the quantity demand of an inferior good will fall.

5. The main characteristics of monopolistic competition are as follows:

(a) The firms under monopolistic competition sell differentiated products. The products are a close substitute but are not perfect substitutes of each other. The products are differentiated based on size, color, and so on.

(b) The firms compete on factor basis rather than price. The firms undertake heavy advertising and other promotional strategies to fight the competition in the market.

(c)Free entry and exit of firms are allowed in the market. In the short run, firms may earn supernormal profits, whereas, in the long run, the firms earn a normal profit.

The main difference between a monopoly and a monopolistic form of competition is the type of product. Under a monopoly market, the firms sell goods which do not have any close substitutes whereas, under monopolistic market, the firms sell differentiated goods which are close substitutes of each other. There is only a single seller in a monopoly market. On the other hand, the monopolistic competition has many sellers in the market.