ECON 1116: Chapter 8 perfect competition

perfect competition

Market Structure Analysis

how economists zoom out to see the bigger picture about how a market behaves

What are the five elements that economics consider when determining market structure?

number of firms in the industry

nature of the industry’s product

barriers to entry

market power

potential for long-run economic profit

perfect competition

many buyers and sellers with no market control and no barriers to enter/exit the industry, no long run economic profit

monopolistic competition

many buyers and sellers in the market, ***differentiated products***, little to no barriers to enter/exit the market, some market power, and no long run economic profit

oligopoly

few large firms, mutually interdependent decisions, substantial barriers to enter/exit the market, considerable market control, potential for long run economic profit

monopoly

one firm, no close substitutes, impossible barriers to enter/exit the market, substantial market power, oftentimes economic profit

price takers

firms that set their prices according to the market price that cannot change

marginal revenue

the change in total revenue that results from the sale of one additional unit of a product

Marginal Revenue = change in total revenue/change in quantity

profit maximizing rule

a firm maximizes its profit when it produces and sells at an output where marginal revenue = marginal cost

MR=MC