Competitive vs. Market Power Firms in the Factor Market

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Presentation transcript:

Competitive vs. Market Power Firms in the Factor Market Chapter 18 - Part 3

Market Power Industries Competitive Industry 3 Market Power Industries Perfect Competition Monopolistic Competition Oligopoly Monopoly Highest Output All have downward sloping demand curves Lowest Output

Almost all market power firms are competitive in the FACTOR MARKET Market Power industries produce _______ output than Competitive Industries Therefore they need _______ INPUTS! 2 T-Shirt Industries: Competitive Monopoly Lowest price Highest price Highest Qty Lowest Qty Hire more workers Hire less workers Hire more inputs: Hire less inputs Cotton, machines, etc…

Competitive vs. Market Power Firm P = MR for a competitive firm P > MR for a firm with market power Wage rate MRPC MRPM MFC = wage rate Therefore MRP curves will be different for each type of firm/industry MRPC = MPL * Price (use demand curve above) MRPM = MPL * MR (use MR curve above) W1 --------------- QM QC Qty

Competitive vs. Market Power Competitive Industry Set MRPL = MFCL (wage rate) They are wage takers Market Power Industry Entire Industry Factor Market Bottom Line: Market power Industries hire less workers pay same wage! (Monopoly, Oligopoly, Monopolistic Competition

Worksheet #3: Competitive vs. Market Power Firms