Market Structure Perfect Competition

Industries differ from one another in terms of:

– how many sellers there are in a specific market,
– how easy or difficult it is for a new firm to enter,
– types of products sold
– How products are priced
– Market power of the firms within the industry

Economists have identified 4 distinct market structures

1. Perfect competition

2. monopolistic competition;
3. Oligopoly

4. Monopoly

Perfect competition as a market structure characterized by

(1) Many buyers
(2) Many sellers,
(3) Firms produce identical (homogeneous)
products
(4) There is easy market entry and exit (No
barriers to entry)
(5) Firms in this market structure are price-takers

In a perfectly competitive market, there are _____ sellers

many

•This means that each firm/producer is very _____ in relation to the industry

small

•An individual firm’s production decision has absolutely ___ impact on the market as a whole.

NO

Industries characterized as perfect competition have

no significant barriers to entry or exit.

What easy entry/easy exit means is that

•the financial, legal, regulatory and other barriers to entering the business are limited.

Perfectly competitive markets consist of a

large number of small suppliers.

Let’s consider why these firms are price takers

•No individual power in the market

•Many, many sellers and buyers

•Consumers do not care who produces the product (no brand name)

•Seller has nothing special about his/her product.

•Free flow of information about price.

Price is given to the firm by the market, so what decision does the firm have?

Find the quantity produced that will maximize profits.

To determine a firm’s profit or loss we have to consider the

•the average total cost for producing at the profit maximizing point.

•The AC curve is __ shaped

U