Learning Outcomes
• List the conditions required for purely competitive markets. • Convey how purely competitive firm maximize profits or minimize losses.
• Explain why the marginal cost curve and supply curve are identical.
• Explain how the long run differs from the short run in pure competition. • Explain the differences between constant-cost, increasing-cost, and decreasing-cost industries. • Show how long run equilibrium in pure competition produces an efficient allocation of resources.
LO1
2
Four Market Models 1) Pure competition
2) Pure monopoly
3) Monopolistic competition 4) Oligopoly
Pure Monopolistic Competition Competition Oligopoly Pure Monopoly
3
LO1
Characteristics of the Four Market Models
Characteristic
Number of firms Type of product Control over price
Pure Competition Very large numbers Standardized None
Monopolistic Competition Many Differentiated Some control Few
Oligopoly
Monopoly One Unique; no close subs. Considerable
Standardized or differentiated Limited by mutual inter-dependence; considerable with collusion Significant obstacles Typically a great deal product differentiation Steel, auto, banking, airlines
Blocked Mostly public relation advertising Local utilities
4
Examples
LO1
Agriculture
Pure Competition: Characteristics 1. Very large numbers of sellers
2. Standardized product
3. Easy entry and exit 4. Perfect information
5
LO2
Pure Competition: Characteristics
Because there are many firms, each firm produces a small portion of the market output. Hence, each firm cannot influence the price. Each firm is a price taker. The firm does not make pricing decisions. The firm...
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