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

2. 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

3. 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…

4. 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

5. 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

6. Worksheet #3: Competitive vs. Market Power Firms