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1.) perfect competition
2.) monopolistic competition
3.) oligopoly
4.) monopoly
what are the 4 market structures?
1.) monopolistic competition
2.) oligopoly
3.) monopoly
what are the 3 types of imperfect competition?
many small firms
what is the size of perfect competition?
someone who takes the market price
what is a price taker?
price takers - market price
what are the prices set in perfect competition?
homogenous (ex: oil)
what is the product type in perfect competition?
none
are there barriers to entry in perfect competition?
many firms
what is the market size in monopolistic competition?
price seekers - maximizes profit
what are the prices set at in monopolistic competition?
differentiated
what is the product type in monopolistic competition?
none
are there any barriers to entry in monopolistic competition?
few firms
what is the market size of an oligopoly?
price seekers - maximizes profit
what is the price set at in an oligopoly?
yes
are there any barriers to entry in an oligopoly?
one firm
what is the market size of a monopoly?
price seekers - maximizes profit
what are the prices set at in a monopoly?
differentiated
what is the product type in a monopoly?
yes
are there any barriers to entry in a monopoly?
where individual sellers have no influence on price - why take market prices
what is perfect competition?
horizontal demand curve
what does the demand curve of perfect competition look like?
individual sellers do have an influence on price - seek best price to maximize profit (price seekers)
what is imperfect competition?
normal demand curve
what does the demand curve of imperfect competition look like?
1.) large number of small independent buyers and sellers
2.) firms sell a homogenous product
3.) no barriers to entry or exit
4.) perfect information
what are the 4 characteristics of perfect competition?
all prices are known to buyers and sellers
what is perfect information?
leads to an increase in competitiveness
an increase in information...
the product is homogenous so they are perfect substitutes for each other
why is there no advertising in perfect competition?
1.) profit
2.) breakeven
3.) shutdown
4.) produce at loss
5.) indifferent
what are the 5 options for a firm?
money in excess of opportunity cost
what is profit?
economic profit = 0
what is breakeven?
you are still earning the opportunity cost
why is breakeven not a bad thing?
by staying in production, if TR > TVC then you can take the money left over after paying L and use it to pay down fixed cost of K -> lose less
how is it possible to lose less sometimes?
if cannot pay L you will lose more money by staying in production
why would a firm need to shut down?
in doing this, all TVC (L) is covered and some TFC (K) is covered
why would a firm produce at loss?
companies with large K costs have more flexibility (due to AFC) so have large space to maneuver
which kind of companies have more ability to produce at loss?
same loss whether producing or not; TR=TVC, can pay L but cannot pay TFC (K)
what does it mean if a firm is indifferent?
economic profit will breakeven (0) because there are no barriers to entry or exit
what happens to economic profit in the long run in perfect competition?
will attract new entrants, increasing supply which decreases price to breakeven (0)
what occurs when economic profit > 0?
firms leave the market, decreasing supply and increases price to breakeven (0)
what happens when economic profit < 0?
a single firm produces a product for which there are no close substitutes and entry of new firms cannot take place
what is a monopoly?
because the highest prices that the firm can charge at each quantity is determined by the demand curve - they search for the correct price to maximize profit
why is there no supply curve in a monopoly?
1.) cartels
2.) no close substitutes
3.) barriers to entry
what are the 3 considerations of a monopoly?
make it difficult or impossible for others to enter the market
what are barriers to entry?
legal and non-legal
what are the 2 types of barriers to entry?
requires the government
what are legal barriers to entry?
public franchises, patents, and government licenses
what are the types of legal barriers to entry?
government grants the exclusive right to produce a good
what is a public franchise?
government grants exclusive right to produce over time, gives an incentive to invent
what is a patent?
economies of scale and owning all of an essential resource
what are examples of non-legal barriers?
phenomenon where the average costs per unit of output decrease with the increase in the scale or magnitude of the output being produced by a firm
what is an economy of scale?
one company is better than many (water company)
what is a natural monopoly?
at 1/2 of demand (with a downward sloping demand line)
when does marginal revenue (MR) cross the quantity (Q) line?
in the LR economic profit does not = 0, max profit is still where MR = MC
what happens to economic profit in the long run of a monopoly?
each company is similar to a monopoly, but other firms can enter the market with similar products
what is monopolistic competition?
since it is similar to a monopoly, it will be the same graph/structure
what does the graph and profit structure of monopolistic competition?
1.) large number of sellers
2.) product differentiation
3.) free entry
4.) advertising is important
what are the 4 characteristics of monopolistic competition?
differences in branding, perceived difference, location etc. that differ products in ways other than prices
what is product differentiation?
shifts demand out (increases), therefore shifts out marginal revenue (MR) as well
why is advertising important in monopolistic competition?
a few firms produce either a differentiated or undifferentiated product
what is an oligopoly?
a differentiated product
what makes an oligopoly more like a monopoly?
an undifferentiated product
what makes an oligopoly more like perfect competition?
leads to an increase in emphasis on price
an increase in similarity of products in an oligopoly...
1.) mutual interdependence
2.) barriers to entry
what are the 2 characteristics of an oligopoly?
what the firm does affects the others
what is mutual interdependence?
you act based on what you think the other person/party is going to do
what is game theory?
there are other factors involved like game theory/mutual interdependence
why is it difficult to use MR=MC for profit max in a oligopoly?
natural barriers like economies of scale and artificial barriers
what are the causes of barriers to entry?
in an oligopoly, the demand curve (thus MR curve) is affected by what other companies do
why does the demand curve shift in an oligopoly?
pricing below profit max levels to deter entry
what is limit pricing?
lower profit in the short run, but increase in profit in the long run
what is the idea behind limit pricing?
a formal alliance of firms that decrease output and increase prices in order to increase industry profits
what is a cartel?
monopoly
a cartel acts like a _________
"hard" cartel and "soft" cartel
what are the two types of cartels?
illegal, price fixed by agreement
what is a "hard" cartel?
industry max profit is not the individual company's profit - incentives to cheat
what is the problem with "hard" cartels?
legal, government involved, laws to limit entry
what is a "soft" cartel?
professional world like doctors, lawyers, etc.
what is an example of a "soft" cartel?
they eventually collapse due to greed
why do economists not worry about cartels?
1.) fewer firms will increase success
2.) having a homogenous product will increase success (emphasizes price)
3.) growing demand and increase in tech = more success because decrease in cost
4.) more likely to succeed with low buyer turnover (stable market and divides sale area)
5.) less likely for success is large buyers present
what are the 5 factors affecting cartel success?
price (capitalism) and quantity (communism) but not both
what are the 2 ways to allocate goods?
who decides who gets what? incentive for favoritism
what is the problem with allocating goods by quantity?
Note 
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