6 Perfect CompetitionIt’s easy to get into and out of the market.
7 Perfect CompetitionSellers are price takers. They must sell their product at the equilibrium price and not one penny more
8 Perfect CompetitionA market may not satisfy one or more of the four conditions and still be perfectly competitiveWhat determines whether a market is perfectly competitive or not is if firms (sellers) in the market are price takers.8
10 Some of the 200 firms in Market X, a perfectly competitive market, are incurring losses. How will these losses influence….seller’s entrance/exit to the market?the supply of the good produced in the market?the price of the good?Flow chart and graph on board
11 How can a seller determine whether or not they are a price taker? Can he/she sell any of the product for even one cent more than equilibrium price?
12 Turn to your partner and tell them three words you think of when you hear the word MONOPOLY
14 MonopolyThe product sold is UNIQUE – there are no close substitutes
15 MonopolyExtremely high barriers to entry…it’s hard to get into a monopoly market.Legal Barrierspublic franchisepatentscopyrightsExtremely Low Per-Unit Costsa natural monopolyExclusive ownership of an essential resource“government monopolies”“market monopoly”
16 Monopoly US postal service 1st class mail Vista Irrigation District Cox Cablehistorically:AlcoaDeBeersStandard OilAT&T
17 MonopolyMonopolists are price searchers. They can sell some of their product at various prices.The demand curve will determine how much they can sell and at what price.Price will be determined based upon their decision on how much to produce.Graph on board
18 many identical Low or none Price takers 1 Unique Price searchers Market Structure# of SellersTypes of ProductsBarriers to EntryControl Over PriceExamplesPerfect CompetitionmanyidenticalLow or nonePrice takersMonopoly1UniqueExtremelyhighPrice searchersMonopolistic CompetitionOligopoly
23 Monopolistic Competition Easy entry and exit from the market
24 Monopolistic Competition Price SearchersThey can sell some of their products at various prices because they sell slightly differentiated products.They decide how much to produce by searching for the price where they can sell all of their output
26 Competitors and Monopoly Many businesses would like to become a monopolythey advertise perceived differencesCompetition depends on two factors:How close to unique the product isHow easy it is for sellers to enter the market26
27 With your neighbor…Think about a monopolistically competitive company from which you have made a recent purchase.What are the substitutes’ prices?Why can there be a range of prices?Why did you purchase the one you did?
28 Name five American car manufacturers OligopolyName five American car manufacturers
29 Oligopoly There are few sellers. A few sellers account for a large percentage of sales
30 OligopolyFirms produce identical or slightly differentiated products.
31 Oligopoly Entry into the market is difficult. low per-unit costs patentscontrol of resources
32 Oligopoly Price Searchers slightly differentiated products difficult to get in the marketthe few sellers may be able to control price through agreement or cooperative actioncartel agreements (illegal)
34 Identifying Oligopoly Industries Economist determine whether a market is an oligopoly by looking at the percentage of sales accounted for by the top four firms in the industry6 major film studios = 90% of revenue20th century, Warner Brothers, Paramount, Columbia, Universal, Walt DisneyDreamworks (Viacom bought—owned by Paramount)2008 became independent again but distributed by DisneyLeading Indies: Lionsgate, Summit Entertainment, MGM (former Biggie!)4 music companies = 80% of revenueSony, EMI, Universal, Warner6 book publishers3 television networks ( )ABC/DisneyCBSNBC Universal2 added sinceTime WarnerNews Corporation (FOX)Food processors: Kraft, Nestle, PepsiCo34
35 many identical Low or none Price takers 1 Unique Many Easy entry Market Structure# of SellersTypes of ProductsBarriers to EntryControl Over PriceExamplesPerfect CompetitionmanyidenticalLow or nonePrice takersMonopoly1UniqueExtremelyhighPrice searchersMonopolistic CompetitionManySlightly differentiatedEasy entryOligopolyFew sellersIdentical or slightly differentiatedDifficultentryPrice Searchers
36 ReviewFirm A is a perfectly competitive firm. Why can’t it sell its product for one penny higher than equilibrium price?Buyers would know that they could buy that identical product for the cheaper price. Why would they pay one penny more?
37 ReviewTo become an attorney, a lawyer must pass the bar examination. Is the bar examination a barrier to entry in the law market?Yes
38 ReviewFirms in a monopolistic competitive market produce slightly differentiated products. How might these products be differentiated?Besides differences in product, they could be sold in different locations, by different people, in a store, online or by phone. They can be bundled with different services or sales conditions.
39 ReviewHow can profits be “competed away” in a perfectly competitive market?It’s an easy market to enter. When businesses see the high profits, they enter the market. More supply lowers the price…
40 ReviewWhat are the two major factors that decide how much competition a firm faces?How close to unique is the product?How easy is it to get into the market for this product?
41 “Stupid is as stupid does.” As you watch the clip from “Forest Gump,” note the process related to Bubba Gump Shrimp’s position in the shrimping market.Before the hurricane, how does the shrimping industry resemble a perfectly competitive market?How does the hurricane change the market price and quantity of shrimp? (Use supply & demand graphs to illustrate.)How did the hurricane create a monopoly for Bubba Gump Shrimp? Use the characteristics of a monopoly to support your answer.Do you think Forest can maintain his monopoly status over time? (In other words, are there barriers to entry?) Explain.41
43 Homework MyVote California Research your assigned topic. Be prepared to develop a short 2-3 minute presentation with your group outlining the five parties on the gubernatorial and senatorial race.Select one:American IndependentGreenPeace and FreedomLibertarianDemocratic and Republican--allCompany Analysis Sheets (Stock Market Part I) due Friday, October 22.