1. Market Structure
The nature and degree of competition among firms operating in the same industry

2. Perfect Competition Large number of buyers and sellers
Buyers and sellers deal in identical products with no difference in quality
Buyer and sellers act independently
Buyers and sellers are reasonably well- informed about products and prices
Buyers and sellers are free to enter into, conduct, or get out of business

3. Profit Maximization in Perfect Competition
Supply and demand set the equilibrium price
After a price is set industry decides on output
The maximum profit occurs when the Marginal cost of a product equals the marginal revenue.
Look at page 165

4. Theory Few perfect markets exist
Vegetable farming….roadside markets
Imperfect markets lacks one or more of the conditions.

5. Monopolistic
This structure has all conditions of perfect competition except for identical products.
Therefore it monopolizes a small portion of the market.

6. Product Differentiation
Real or imagined differences between competing products in the same industry
Different brands
Are they really real or do they just appear real?
Nike, Adidas, New Balance?

7. Non-price Competition
Use of advertising, giveaways, or other promotional campaigns to convince buyers that the product is somehow better than another brand.

8. Monopolistic Competition and Profit Maximization
Narrow price range-
Sellers raise or lower the price within this narrow range to keep buyers from switching brands.
Think about shoes…what is the most you will pay?
What if they are too cheap? Does that affect you?

9. Oligopoly
A market structure in which a few very large sellers dominate the industry.
Auto-industry
The number of firms is not as important as the ability to change output
Further from perfect competition than monopoly

10. Interdependent Behavior
When one firm acts another follows
Employee pricing
Collusion-a formal agreement to set prices in a cooperative manner
Price Fixing-agreeing to change the same or similar prices. This is almost always higher than the market price.

11. Pricing behavior One company changes expecting the others to follow.
What if they do not?
Why do they?
Think about gas prices.

12. Profit maximization Marginal cost equals marginal revenue.
Much higher than perfect competition and higher than monopolistic competition.

13. Monopoly Opposite end of the spectrum from perfect competition.
Only one seller of a particular product
Extreme case.
In some rural areas internet and phone companies

14. Types of monopolies
Natural monopoly- costs of production are minimized by having a single firm produce the product
Phone lines and gas lines
Cost of production falls as the firm gets larger

15. Geographic monopoly Absence of other sellers in that area
Byron Nebraska has one grocery story and one gas station…closest is 18 miles

16. Technological monopoly
A patent may be granted for 20 years and copyrights last for lifetime plus 50 years.
Disney was great at this.

17. Government Monopoly
Only the government can provide the service or good.
Weapons and resources

18. Profit maximization
They have the greatest ability to set price. They also have the largest profit opportunity.
The price market allows them to charge more and produce less.