1. Monopoly, Oligopoly, Monopolistic Competition, Perfect Competition

2. 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

3. Pure Monopoly Sellers—single seller 1. geographic 2. natural 3. government 4. technological

4. 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)

5. 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

6. 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)

7. Entry—Substantial barriers to entry (i.e. excessive capital costs, customer loyalty, economies of scale) Other—nonprice competition Kinked demand curve Collusion Cartel Interdependence Result– Some control over price D

8. How an economist views a firm How an accountant views a firm Rev- enue Opportunity costOpportunity cost revenuerevenue

9. 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?