Pure Competition
177-178
Mr. Henry
AP Economics
Four Types of
Markets
• There are four types of market structures, each
differing in several aspects:
- Number of firms in the industry
- Whether those firms produce a standardized
product or try to differentiate their products from
those of other firms
- How easy or difficult it is for firms to enter the
industry
Characteristics of the Four Basic
Market Models
• After looking at the characteristics of a pure
monopoly, what examples can you think of for a
pure monopoly?
• After looking at the characteristics of an oligopoly,
what examples can you think of for this? Note:
Collusion is when firms “work” together
• After looking at the characteristics of monopolistic
competition, what examples can you think of?
• After looking at the characteristics of pure
competition, what examples can you think of?
Pure Competition
Characteristics
• Pure competition is relatively rare in the real world
Characteristics include:
- Must be very large numbers of buyers and sellers
- Must deal in identical products
- Must act independently (must compete) and is a
“price taker,” meaning it is at the mercy of the
market and cannot ask for more money
- Firms are free to enter into, conduct, or get out of
business, so there are no significant obstacles
Demand as Seen by a
Purely Competitive Seller
AP Review Questions
• A requirement of perfect competition is that
i. Many firms sell an identical product to many buyers
ii. There are no restrictions on entry into (or exit from)
the market, and established firms have no advantage
over new firms
iii. Buyers are well informed about prices
A. i only
B. i and ii
C. iii only
D. i and iii
E. i, ii, and iii
E. i, ii, and iii
• For a perfectly competitive corn grower in
Nebraska, the marginal revenue curve is
A. Downward sloping
B. The same as the demand curve
C. Upward sloping
D. U-shaped
E. Vertical at the profit maximizing quantity of
production
B. The same as the demand curve