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Transcript
Market Structures SSEMI4 The student will explain the organization and role of business and analyze the four types of market structures in the U.S. economy. c. Identify the basic characteristics of monopoly, oligopoly, monopolistic competition, and pure competition. Number of Sellers Are there many, few, or one seller(s) of the product? Price Setting Power Can the individual firms in the market for a product have any control over the price they charge? Product Differentiation Is there any difference between the products sold by the sellers in the market for the good? Non-Price Competition Can the firms in the market use methods other than price to attract customers? Barriers to Entry: Are there any obstacles that prevent other firms from entering the market for the good? Long-run Profits: Are firms in the market able to make economic profits (long-run) as well as accounting profits (short-run)? Economic Profits: Money left over for a firm after covering both out of pocket expenses (explicit costs) and opportunity costs (implicit costs). Accounting Profits: Money left over for a firm after covering out of pocket expenses (explicit costs). Pure (Perfect) Competition: A market structure characterized by a large number of buyer and sellers of an identical product. # of sellers = many Price setting power = none Product differentiation = none, product is identical Pure (Perfect) Competition: Non-price competition = None; firms sell all they want at the market price Barriers = None; easy to enter and exit the market Long Run Profits = None; firms enter to get short-run profits and leave when the profits disappear Monopolistic Competition: A market structure characterized by a large number of buyers and sellers of products that are similar to one another can be differentiated by brand, quality, etc. Example: restaurants and retail clothing sellers # of sellers = many Price Setting Power = a little bit Monopolistic Competition: Product Differentiation = Yes; must differentiate to attract consumers Non-Price Competition = Yes; uses lots of advertising Barriers = None; easy to enter and exit the market Long-Run Profits = None; firms enter to get shortrun profits and leave when the profits disappear Oligopoly A market structure characterized by only a few sellers of a product who dominate the market. Example: breakfast cereals and natural gas # of sellers = few Price setting power = Some; practice price leader-ship; as one raises price the other firms follow Product differentiation = Yes or No; products can be identical or differentiated Oligopoly Non-Price Competition = Yes; use advertising to attract customers Barriers = Yes; these firms are usually very large and can produce many units at low per unit costs making it difficult for small firms to compete Long-Run Profits= Yes Monopoly A market structure characterized by only one seller of a product dominating the market. Example: electrical power companies and cable television companies # of sellers = One Price setting power = A lot; Price seeker or price maker Product differentiation = No; only one firm Monopoly Non-Price Competition = Public relations; want consumers to feel good about the company Barriers = Yes; government licenses and patents can bar entry; ownership of factors of production Long-Run Profits= Yes