Chapter 7- Pure competition

what are the four market models

pure competition, monopolistic competition, oligopoly, pure monopoly

very large number of producers

-large number of independently acting sellers

- agricultural product markers or the foreign exchange market

-Pure competition in the SR

standardized product

- identical or homogenous product

- the products are perfectly substitutable

-because products are standardized, there is no need to engage in non price competition (competing with product qualities, differences, or preferences)

- pure competition in the SR

price taker

- producer cant influence output level thus price

- price is determined by the market

-pure competition in the SR

free entry and exit

-no significant legal, technological, financial, or other obstacles

- pure competition in the SR

Purely competitive seller demand

- perfectly elastic demand for the product of an individual competitive firm

Pure competition characteristics

- mainly agriculture

- a very large number of firms (infinity)

- standardized product

monopolisitc competition characteristics

- retail, hotels, restaurants

- many number of firms (40-60)

- differentiated product (ex. advertisement's)

oligopoly characteristics

-manufacturing, mining, steel, airlines

- few number of firms (2-5)

- mutual interdependency

- product differentiation (ex.advertisments)

pure monopoly Characteristics

- De beer's diamonds, local electric utility, telephone service

- "1" firm

- unique products (no substitutes)