Chapter 7 Market Structures
Rancell Brito, Gabriela Ruiz, Nicole Delcampillo, Eddy Saczek
Period 5, March 24, 2011
Section 1 Perfect Competition
Four conditions for perfect competition
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First many buyers and
sellers have to
participate in the
market.
Second sellers offer
identical products.
Then, buyers and
sellers are well
informed about the
product.
Lastly, sellers are able
to enter and exit the
market freely.
The simplest market structure is perfect competition
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This market is the one with
a large number of firms all
producing essentially the
same product.
It is full of firms but they
produce so little of the
product so there is not only
one firm that can influence
the prices.
Many buyers and sellers participate in
the market.
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This means that no
one can buy and sell
enough goods to
influence greatly the
total market
economy quantity.
The market
determines price with
out any influence
from individual
suppliers or
consumers.
http://www.movebr.com/images/handing-keyssmall.png
Identical products
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This means that
there are no
differences
between products
sold by different
suppliers.
A commodity is a
product that is
considered the
same no matter
who makes or sell
it.
http://farm3.static.flickr.com/2509/372685220
2_8142a676d8.jpg
Informed buyers and sellers
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The buyers and
sellers know
enough about the
market to find the
best deal that they
can get.
http://anurealty.com/wp2/wp-content/uploads/2010/12/buyerssellers20street0sign.jpg
Free market Entry and Exit.
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For this you need to
be able to enter when
you can make money
and leave when you
are losing profit.
Decision making
skills.
http://images.wikia.com/wikiality/images/6/61/Free_
Marketmechanism.jpg
Barrier to entry
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These are
factors that
make it difficult
for new firms to
enter a market.
http://interacc.typepad.com/.a/6a01053596fb28970c012876cc23
d9970c-300wi
Imperfect competition

In this the
common barriers
to entry include
start-up cost
and technology.
http://ctaar.rutgers.edu/gag/GRAPHS/moncmp1.gif
Start-up Cost

These are the
expenses that a
new business
pay before the
first product
reaches the
costumer.
http://www.bartenderconfessions.com/wpcontent/uploads/2008/07/banner7.jpg
Technology
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When a school
group needs to
raise money, its
members can sell
goods like flowers,
cookies, or candy.
But many students
would not sell the
new worldprocessing program
because they would
have no idea how
to make profit.
http://studentlife.unlv.edu/tech
nology/images/technology.jpg
Price and Output
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Perfectly competitive
markets are the most
efficient.
In a perfectly competitive
market price correctly
represent the opportunity
cost of each product.
To sum-up in the long run,
output will reach the point
where each supplying firm
just covers over all its cost,
including paying the firms
and whereas enough to
make the business worth
while.
http://www.xhtml-css-code.com/wpcontent/uploads/2009/07/right_price.jpg
Section 2 Monopoly
Describing Monopoly
A Monopoly is a market dominated by a single seller.
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Normal competitive market
has a lot of buyers and sellers
Monopoly market there is only
one seller.
a lot of requirements define a
monopoly, even if it looks and
acts like a monopoly, it might
not be one.
There are ways around a
monopoly.
Forming a Monopoly
Economies of Scale
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Economies of scale: factors that cause a producer’s average cost per unit to fall as output rises.
The more you produce the less it costs.
If it costs $1,000 to build a factory, and each unit of output costs $10 then to make one unit it
will cost $1,010. If you will produce 2 units then it will cost $1,020, that means that one unit
would cost $510
If the industry has limited economies of scale the output will rise to a level when the limited
scale are exhausted and the cost will go up
Factories that have a good economies of scale then the industry costs will never go up.
Forming a Monopoly
Natural Monopolies
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Natural monopoly a market that runs most
efficiently when one firm provides all of the
output.
If another firm enters the market, both firms will
have to compete to sell more; neither of them
will earn as much as they need and they will both
have to close.
A good example of a natural monopoly is a water
company.
To have more than one water company in a
competitive market, both companies would have
to dig reservoirs and set up overlapping networks
of pipes and pumping stations to deliver water to
the same town. This would cause each company
to pump unneeded water threw the pipes to
compete and they would have to pay for more
pipes.
Government Monopolies
A government monopoly is a monopoly created by the government.
Technological Monopolies
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The government gives a company monopoly power by issuing a patent
A patent gives a company exclusive rights to sell a new good or service for a
specific period of time.
If someone invents something, and proves to the government that they invented it,
the government should give them a patent and then they are the only people aloud
to sell that.
The government wants to give companies the power to have a monopoly so that
they can profit from there research
Government Monopolies
Franchises and Licenses
A franchise is a contract issued by a local authority that gives a single firm the right to
sell its goods within a exclusive market.
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For example, a national park
would only allow on firm to
sell food inside the park.
On a larger scale, the
government would issue a
license
A license is a government
issued right to operate a
business.
Government Monopolies
Industrial Organizations
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The government allows
the companies to restrict
the number of firms in a
market.
For example, in the
United States Major
League sports restrict
the number and location
of there teams.
Output Decisions
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A monopolist
always looks at the
bigger picture on
things.
If you want
something you will
pay anything.
Monopolist will
make fewer goods
at a higher price.
The Monopolist’s Dilemma
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It all depends on the
person if you need it you
will pay whatever the
price is.
The law of demand is
when a monopolist
increase a price, and it
will sell less when its
cheaper it will sell more
If you produce more, the
price falls, it produces
less and the price will rise
Falling Marginal Revenue
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A sell should set revenue, so
that it’s whatever it earned
the last time it can equal the
marginal cost or extra.
The difference between
perfectly competitive market
and marginal revenue each
firm will receives the same
price no matter how much it
produces
Breather Deep is shown as if
you set a higher price it wont
sell as if it was lower you will
sell more and get more profit
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Marginal revenue is mostly
equal to price
A firm when it has control
over a price and if they can
out a price to sell more the
marginal revenue will be less
than the price
A market the price will stay
the same
Setting a Price
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Now marginal revenue is
equal to marginal cost
Market demand curve for
Breath Deep shown in purple
Marginal revenue curve
shown in blue.
Monopolist marginal revenue
is lower than the market
price
Price and outputs will be
different if and market is
perfectly competitive.
In a perfect competitive
market marginal revenue will
always be equal to market
price
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Breathe Deep will always
have more units sold and a
lower market price than a
monopoly.
Profits
How much will a monopolist
earn?
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The cost of
producing 9,000
doses is $3 per
dose. Each dose
will be sold at $11.
The monopolist at
the end will earn
$8 of profit per
dose.
PRICE DISCRIMINATION
Price Discrimination- Divisions
of customers or groups based
on how much they will pay for
goods.
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Monopolist will be able to
divide the consumers into
groups and charge
different prices to each.
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Market Power- The ability of
companies to change prices
and output like a
monopolist.
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Monopolist will set a
lower price & will gain
more consumers.
Market Power and Price
Discrimination can be
found in any market
except for a perfect
competition.
TARGET DISCOUNTS
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Companies tend to
divide consumers into
groups and create
price polices for each.
Companies look for
consumers in need of
goods that are willing
to pay.
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Discounted airline fare:
travelers who buy their
tickets weeks in advanced.
Manufactures’ rebate
offers: certain
manufactures like cars &
televisions will make a
small refund to the buyers
who fill out a form and
mail it back to them.
Senior citizen or student
discounts: In some places
they allow students or
senior citizens a discount
because they know they
are not able to pay full
price. Like movies, zoo
Children fly or stay free
promotion: Families with
children tend to spend
money on expenses rather
than on vacations so there
are offers with family with
children discounts
Limits of Prices Discrimination
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Some market power: firms
must have some control over
prices.
Distinct customer groups:
Price-discriminating firms
must be able to divide
customers into distinct based
on pricing.
Difficult resale: If one
customer buys a product at a
low price and goes back and
sells it at a higher price to
make profit it will not be
considered Price
Discrimination.
Section 3 Monopolistic Competition and oligopoly
Monopolistic competition
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In a monopolistic competition, companies compete by selling products that
are similar but not identical.
This competition is possible because products being sold by individual firms
are similar enough to be substituted by one another.
An example of monopolistic competition is leather jackets. Each jacket is
made of leather but you can choose from different styles etc..
Other examples are ice cream shops, gas stations , and retail stores
Four conditions of monopolistic
competition
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Many firms
Few artificial
barriers to entry
Slight control
over price
Differentiated
products.
Many firms
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Monopolistically
competitive markets
are not determined
by high start up
costs. So companies
can start earning
money after small
initial investments.
This allows for many
firms to begin
competing
Few artificial barriers to entry
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When firms enter
monopolistically
competitive markets
they do not face high
barriers.
Patents do not stop
anyone from competing
Also there are so many
companies that
producers cannot work
together to keep out
new competitors
Slight control over price
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Firms have little control
over price in
monopolistic
competitive markets.
This is because
consumers can easily
substitute a product for
another similar one.
For example a buyer
will probably choose a
generic brand of cola
over coca-cola if they
can get a better deal
on it.
Differentiated products
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Differentiation
allows a
monopolistically
competitive
seller to profit
from the
differences of his
or her
competitors
products
Non price Competition
Firms compete not only based on price. They compete on
several different forms.
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Physical characteristics. The simplest
way for a firm to distinguish its product
is by size, shape, color, texture, and
taste. For example a pen is always a
writing utensil that requires ink but a
customer pay extra for a pen that
looks or writes differently.
Location. Products can be
differentiated by where they are sold.
This can either make them fail or
thrive. Like a convenience store located
in the desert probably wont be as
successful than a store centralized
around the population.
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Service level. Sellers can charge higher
prices due to the level of service. A
conventional restaurant and a fast food
restaurant may charge different prices
for the same meal due to the service.
advertising imaging or status. Firms
create apparent differences to theier
own products to raise prices. A
designer might put the name of the
brand on a normal t-shirt and sell it at
a higher cost than the same t-shirt
without the brand name on it.
Price output and profits
When economist look price out put and profits and compare
it perfect competition, they realize they are very similar.
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Prices
Prices in a monopolistic economy are
usually higher. But the amount of
competing companies prevents prices
of products from skyrocketing.
Output
Output and price are negatively
related. As one goes up the other one
goes down.
Profit
Monopolistically competitive firms earn
just enough to cover their costs. Even
though companies can earn profits,
companies need to work hard to keep
their products at the top.
Oligopoly
Barriers to entry
 An oligopoly can create
barriers to keep other
companies from entering.
Cooperation and collusion
 Oligopolistic firms seem
to work together to forms
monopolies. But
governments have
regulations against this.
Sometimes market
leaders can cut or raise
prices by making it clear
to other firms.
Cartels
 A cartel is a formal
agreements by producers
to coordinate prices and
production. Cartels are
illegal in the united
states. If not prices will
rise and firms will lose
profits.
Reference
Gaby
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http://www.apple.com/
http://thefuntimesguide.com/images/blogs/
monopoly-here-and-now-game-board.jpg
http://img.dailymail.co.uk/i/pix/2008/05_01/
041tap_468x477.jpg
http://www.ct.gov/dpuc/lib/dpuc/Pic2.JPG
http://popten.net/wpcontent/uploads/2008/12/canal-walk-foodcourt1.jpg
http://www.sevensidedcube.net/wpcontent/uploads/mlb.jpg
http://www.pearsonsuccessnet.com/
Eddy
Nicole
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http://3.bp.blogspot.com/_8Z5Q7nkW8LU/TH0K
vCYvG9I/AAAAAAAAMFg/K_PqO3mtos/s1600/wall-street.jpg
http://www.evanmiller.org/images/grouponoptimum.png
http://www.blogcdn.com/smallbusiness.aol.com/
media/2010/08/set-price-430rk080310.jpg
http://www.seobook.com/images/excessiveworry-blog-post-profit.jpg
http://www.law.harvard.edu/faculty/tfisher/termi
nator_files/image004.gif
http://www.pearsonsuccessnet.com/
http://images.businessweek.com/ss/09/06/0629_innovation_lessons_of_ipod/image/10_competition-getty-image.jpg
http://clausvistesen.squarespace.com/storage/headers-for-entries/20020910033%20NewYork%20financial%20wall%20street.JP
http://www.walkerclark.com/images/3_m_e_af_shirtsleeves_outside.jpg
http://thinkflood.com/blog/images/TrafficCones.jpg
http://www.istockphoto.com/file_thumbview_approve/4205752/2/istockphoto_4205752-price-tagwith-copy-space.jpg
http://fc05.deviantart.net/images/i/2002/36/9/4/Store_Isle.jpg
http://llatech.com/wp-content/uploads/2011/01/business-increase-profits1.jpg