Download Market Structures

Monopoly, Oligopoly, Monopolistic Competition,
Perfect Competition
Perfect Competition
 Sellers– numerous buyers and sellers
 Product—similar…homogeneous product
 Market Entry—easy…no way for sellers already in the
market to prevent competition…initial cost of
investment is small
 Other—easily obtainable information
---economic profits are zero in the long run
 Result– no control over price…price taker
D
Pure Monopoly
 Sellers—single seller
1. geographic
2. natural
3. government
4. technological
 Products—no substitutes
 Entry—no entry into the market…high barriers to
entry (govt. regulations, patents, etc.)
 Other—ECONOMIES OF SCALE (related to natural
monopoly)
 Result—almost complete control over price (control
price by controlling supply available)
Monopolistic Competition
 Sellers—numerous sellers and buyers
 Product—differentiated products (this is what makes
MC different from PC)
 Entry—relatively easy entry (but, high costs of
advertising…i.e. fast food)
 Other—non price competition (use product
differentiation and advertising to compete)
 Result—some control over price
Oligopoly
 Sellers—dominated by a few sellers
 Concentration ratio—the 3-4 largest firms in the
industry control 70+% of the market share
 Pure or Differentiated oligopolies (identical or
differentiated products)
 Entry—Substantial barriers to entry (i.e. excessive
capital costs, customer loyalty, economies of scale)
 Other—nonprice competition
 Kinked demand curve
D
 Collusion
 Cartel
 Interdependence
Result– Some control over price
How an economist views a firm
Revenue
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How an accountant views a firm
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PROBLEM…
 Farmer McDonald gives banjo lessons for $20 per hour.
One day, he spends 10 hours planting $100 worth of
seeds on his farm. What opportunity cost has he
incurred? What cost would his accountant measure?
If the seeds will yield $200 worth of crops, does
McDonald earn an accounting profit? Does he earn an
economic profit?