Today’s Warm Up In your notes, give several examples of local businesses that have a lot of competition (list at least 3) Select 1 and explain how competition affects prices, quality, and the availability of goods

Unit 5: Firm Behavior and the Organization of Industry

What will we study in this unit? 1. The Costs of Production How do firms make production and pricing decisions? 2. Competitive Markets How does competition affect a firm’s behavior and overall efficiency? 3. Monopolies What happens when there isn’t competition? How does this affect a firm’s behavior and overall efficiency? 4. Monopolistic Competition 5. Oligopolies

Overview of Market Structures

Competition Important characteristic of market economies Leads to lower prices, better quality in g/s, and efficient allocation of resources

Competition Although competitive markets dominate U.S. economy, some industries are clearly more competitive than others Examples of industries with less competition?

Market Structures Economists often categorize industries according to level of competition Categorized into four main market structures: Pure Competition Monopoly Monopolistic Competition Oligopoly

Degree of Competition Degree of competition affects decisions made by firms in the industry For example… Purely competitive firms are so small relative to the total market that their output decisions can’t affect overall prices Pure monopolies, on the other hand face no competition and can charge the highest prices the market will bear Studying the different market structure provides basis for understanding how businesses make decisions about how much to produce, how much to charge, and leads to conclusions about the efficiency of the market

Jigsaw Activity: Market Structures You have been assigned one type of market structure to research. Summarize your assigned market structure with three key ideas your classmates should absolutely know and understand. Then, fill out your chart and be prepared to explain it to someone else…

Stop, Collaborate, and Listen Find the folks who summarized the same market structure you did. Go through your key statements and charts; make any updates as needed Make sure you feel comfortable and confident explaining the material to somebody else!

Sharing is Caring Form new groups – this time with one representative from each market structure DO NOT SIMPLY COPY your classmates’ charts and summarizing statements; TEACH and EXPLAIN them As a group, come up with an example for each market structure that has not been mentioned or discussed yet; Be ready to share

Explain what you think would happen to your sales levels if you raised or lowered the price of your product. Wheat farmer Increase your price Decrease your price Local electric company U.S. Automobile manufacturer Flower shop

Are you picking up what I’m putting down? Take out a blank piece of paper… Number it from 1 to 3 and make sure your name is at the top.

Are you picking up what I’m putting down? A certain industry is made up of only a few large firms. These firms keep close watch on one another’s prices and business strategies. They compete in part by doing a lot of advertizing. This industry would be described as: Perfect competition Monopolistic competition Oligopoly Monopoly

Are you picking up what I’m putting down? Under perfect competition: New firms have a great deal of trouble entering the industry Firms charge vastly different prices Each firm’s product is very different from the product of the other firms No one producer is able to influence the price of the product

Are you picking up what I’m putting down? Economists agree that it is better to have competitive industries in an economy than monopolies. Think of a competitive industry in your area, such as fast food. (Technically, the fast-food industry would fall under monopolistic competition rather than pure competition.) What are some advantages of having competition in the fast-food industry? In your answer, discuss prices, quality, and amounts of goods available.