# Three Rules and Four Models

Size: px
Start display at page:

Transcription

1 Three Rules and Four Models Three Rules: How to find the profit maximizing quantity: A firm will maximize its profit (or minimize its losses) by producing that output at which marginal revenue and marginal cost are equal provided product price is equal to or greater than average variable cost. (1) Find the quantity where: MR=MC (2) produce this quantity only if: AR > AVC or P > AVC This is WHAT WE GET How to find the productively efficient quantity: Society will achieve productive efficiency by producing that output at which the average total cost (ATC) is at a minimum. minimum ATC, or MC = ATC This is WHAT WE WANT How to find the allocatively efficient quantity: Society will achieve allocative efficiency by producing that output at which price and marginal cost are equal. P=MC

2 Four Product Market Models: 1. Competitive Market (Pure Competition) Characteristics: 1. Number of firms: very large numbers 2. Type of product: standardized product 3. Control over price: none, they are "price takers" 4. Ease of entry: no barriers; free entry 5. Nonprice competition: none Examples: Agriculture Why is the D curve horizontal? The demand curve is perfectly price elastic giving the firm no control over the price because of the very large number of firms producing standardized (identical) products. If one firm tries to charge a higher price all customers would buy from someone else. If one firm decides to sell nothing it has no effect on the market supply because there each firm produces an insignificant amount of the total Why does P = MR? Because the demand curve s perfectly price elastic. Since a single firm can sell all that they produce at the equilibrium price (i.e. they do not have to lower the price to sell more) the extra revenue that they receive when they sell one more unit (the MR) is the same as the price. Long-run equilibrium graph: What happens if there are short run profits?

3 Remember, there are no barriers to entry, therefore if there are short run profits as shown in the graph on the left above, new firms will enter. When new firms enter (an increase in the number of producers) the market supply will increase (shift to the right) and cause the price to drop and they will no longer be earning profits. What happens if there are short run losses? I there are short run losses as shown in the graph on the left above, firms will leave the industry. When firms leave (a decrease in the number of producers) the market supply will decrease (shift to the right) and cause the price to drop and they will no longer be earning profits. Why are there only normal profits in the long run? Because there are no barriers to entry. If there are short run profits new firms will enter and the price will drop. If there are short run losses, firms will leave the

4 industry and the price will rise. After all long-run adjustments are completed, product price will be exactly equal to, and production will occur at, each firm's point of minimum average total cost, and the firm will earn normal (zero) profits. Long Run Equilibrium Graph Pure Competition: Be able to find the: 1. profit maximizing quantity and price: Quantity would be Q (where MR=MC) and the price would be P 2. profits: none; normal profits 3. allocatively efficient quantity: Q (same as the profit maximizing quantity) 4. productively efficient quantity: Q (same as the profit maximizing quantity)

5 2. Monopoly Characteristics: Examples: 1. Number of firms: one 2. Type of product: unique product; no close substitutes 3. Control over price: very much; considerable 4. Ease of entry: blocked What are the barriers to entry? A. Economies of scale constitute one major barrier. This occurs where the lowest unit costs and, therefore, lowest unit prices for consumers, depend on the existence of a small number of large firms or, in the case of a pure monopoly, only one firm. Because a very large firm with a large market share can produce at a lower ATC than if there were many firms producing a small market share B. Legal barriers to entry into a monopolistic industry also exist in the form of patents and licenses. C. Ownership or control of essential resources is another barrier to entry. D. Monopolists may use pricing or other strategic barriers such as selective price-cutting and advertising. 5. Nonprice competition: mostly public relations advertising 1. Public utilities: gas, electric, water, cable TV, and local telephone service companies, are often pure monopolies. 2. First Data Resources (Western Union), Wham-O (Frisbees), and the DeBeers diamond syndicate are examples of "near" monopolies. 3. Manufacturing monopolies are virtually nonexistent in nationwide U.S. manufacturing industries. 4. Professional sports leagues grant team monopolies to cities. 5. Monopolies may be geographic. A small town may have only one airline, bank, etc. Why is the demand curve downward sloping? Monopoly demand is the industry (market) demand and is therefore downward sloping just lake we learned in the Supply and Demand chapter.

6 Why is MR < P? Price will exceed marginal revenue because non-price discriminating monopolist must lower the price to ALL CUSTOMERS in order to sell the additional unit. The added revenue will be the price of the last unit less the sum of the price cuts which must be taken on all prior units of output Long-Run Equilibrium Graph - Monopoly Why are there long run profits? Because there are barriers to entry (entry is blocked). Be able to find the: 1. profit maximizing quantity and price: quantity is 0M, price is 0A 2. profits: BAFG 3. allocatively efficient quantity: 0Q 4. productively efficient quantity: 0N

7 Natural Monopoly How can you tell from this graph (see below) that this is a natural monopoly? Because the demand curve crosses the ATC curve while the ATC is still going down. This means that one firm can produce everything that is demanded at a lower cost than if there were many firms each producing a small amount (at a higher ATC). What are some examples of natural monopolies? Public utilities are often natural monopolies because they have economies of scale in the extreme case where one firm is most efficient in satisfying existing demand. Therefore the government usually gives one firm the right to operate a public utility industry in exchange for government regulation of its power. If there were more than one firm it would be productively inefficient (higher average total costs) because there would be many pipes and wires going to each house. Explain WHY it is more productively efficient for there to be only one producer. (WHY are there natural monopolies?) SAME ANSWER AS ABOVE - Public utilities are often natural monopolies because they have economies of scale in the extreme case where one firm is most efficient in satisfying existing demand. Therefore the government usually gives one firm the right to operate a public utility industry in exchange for government regulation of its power. If there were more than one firm it would be productively inefficient (higher average total costs) because there would be many pipes and wires going to each house.

8 Be able to find the: 1. profit maximizing quantity and price: Q1 (where MR=MC), P5 2. profits: for profits see graph below 3. allocatively efficient quantity: Q3 (where P=MC or D=MC) 4. productively efficient quantity: Q4 (minimum ATC or where MC=ATC) 5. "fair-return" price and quantity: Q2 and P4 (where D crosses the ATC)

9 3. Monopolistic Competition Characteristics: Examples: 1. Number of firms: Many 2. Type of product: Differentiated What is product differentiation and how is it achieved? Product differentiation is a strategy in which one firm s product is distinguished from competing products by means of its design, related services, quality, location, or other attributes (except price). Product differentiation and other types of nonprice competition give the individual firm some degree of monopoly power that the purely competitive firm does not possess therefore it allows producers to have some control over the prices of their products. Product differentiation may be physical (qualitative). It may include services and conditions accompanying the sale of the product. Location is another type of differentiation. Brand names and packaging lead to perceived differences and are forms of product differentiation as well. 3. Control over price: some, depending on the degree of product differentiation 4. Ease of entry: easy 5. Nonprice competition: a lot; product differentiation is a type of nonprice competition Retail trade, Restaurants, Manufactured Ice, Plastic Pipe, Book Publishing, Paperboard Boxes, Curtains and Draperies, Textile Machinery, Leather Goods, Lighting Fixtures, Wood Furniture, Wooden Kitchen Cabinets Define Concentration ratio: The percentage of the total sales of an industry made by the four (or some other number) largest sellers in the industry. (Is the concentration ratio HIGH or LOW for monopolistically competitive industries?) LOW Define: Herfindahl index: A measure of the concentration and competitiveness of an industry; calculated as the sum of the squared percentage market shares of the individual firms.

10 SUM % market shares squared If monopoly = 100 squared = 10,000 If 4 firms with 25% each = 25 squared + 25 squared + 25 squared + 25 squared = 2500 (Is the Herfindahl index HIGH or LOW for monopolistically competitive industries?) LOW Long-Run Equilibrium Monopolistic Competition Why are there only normal profits in the long run? Because there are few barriers to entry. Whenever there are no, or few, barriers to entry, firms will not be able to earn long run profits because if there are short run profits new firms will enter causing the price to g down and the profits to evaporate. What happens if there are short run profits as shown in the graph below? If there are short run profits, new firms would enter the industry (remember, there are few barriers to entry) and the demand curve for all of the existing firms will decrease (move ot the left).

11 What happens if there are short run losses as shown on the graph below? If there are short run losses, firms would leave the industry (go out of business in the ling run) and the demand curve for all of the remaining firms will increase (move to the right). Long Run Equilibrium Graph Monopolistic Competition: Be able to find the: profit maximizing quantity and price: quantity would be Q1 where MR=MC, and the price would be P4

12 profits: zero, or normal profits allocatively efficient quantity: Q2 (Where P=MC or D=MC) productively efficient quantity: Q3 (minimum ATC or where MC=ATC)

13 4. Oligopoly Characteristics 1. Number of firms: FEW; So few that collusion may be possible and mutual interdependence exists What is collusion? Collusion is a situation in which firms act together and in agreement (collude) to fix prices, divide a market, or otherwise restrict competition. In other words, they cheat and work together as if they were a monopoly. What is mutual interdependence? Mutual interdependence is a situation in which a change in price strategy (or in some other strategy) by one firm will affect the sales and profits of another firm (or other firms); any firm which makes such a change can expect the other rivals to react to the change Is the concentration ratio HIGH or LOW for oligopolistic industries? HIGH Is the Herfindahl index HIGH or LOW for oligopolistic industries? HIGH 2. Type of product: Standardized (homogenous) OR differentiated 3. Control over price: Since there are few firms in the industry you would expect there to be a lot of control over price, but it is limited by mutual interdependence. A firm has to be concerned about what their competitors will do if it decides to change its price. With collusion there is much control over price (like a monopoly). 4. Ease of entry: Entry is difficult since there are significant barriers to entry. 5. Nonprice competition: If they have differentiated products, there is a lot of nonprice competition.

14 Examples: Automobiles, cigarettes, breakfast cereal, beer, soaps and detergents, refrigerators, roasted coffee, copper, flat glass, What are the three oligopoly pricing models? Kinked demand (non-collusive) Collusion and Cartels Price Leadership What are the assumptions behind the kinked demand curve? The kinked demand model is based on the assumption that rivals will: - follow a price decrease, and - ignore a price increase.

15 Oligopoly Long-Run Equilibrium Graph - Kinked Demand Model Be able to find the: 1. profit maximizing quantity and price: quantity is 0f (where MR=MC) and price is 0d (from the demand [D] curve) 2. profits: adkp 3. allocatively efficient quantity: 0h 4. productively efficient quantity: 0g

16 Oligopoly Long Run Equilibrium - Collusive Oligopoly Define Collusion: Collusion is a situation in which firms act together and in agreement (collude) to fix prices, divide a market, or otherwise restrict competition. In other words, they cheat and work together as if they were a monopoly. Cartel A cartel is a group of producers that creates a formal written agreement specifying how much each member will produce and charge. The Organization of Petroleum Exporting Countries (OPEC) is the most significant international cartel. overt collusion collusion that is formal and known by all, like OPEC covert collusion Tacit understandings or gentlemen s agreements, often made informally, are also illegal but difficult to detect. What are the obstacles to collusion? a. Differing demand and cost conditions among firms in the industry; b. A large number of firms in the industry; c. The incentive to cheat; d. Recession and declining demand (increasing ATC); e. The attraction of potential entry of new firms if prices are too high; and f. Antitrust laws that prohibit collusion.

17 Long Run Equilibrium Graph Collusive Oligopoly (same as Monopoly graph) Be able to find the: 1. profit maximizing quantity and price: quantity is 0M and price is 0A 2. profits: BAFG 3. allocatively efficient quantity: 0Q 4. productively efficient quantity: 0N

### Unit 4: Imperfect Competition

Unit 4: Imperfect Competition 1 Monopoly 2 Characteristics of Monopolies 3 5 Characteristics of a Monopoly 1. Single Seller One Firm controls the vast majority of a market The Firm IS the Industry 2. Unique

### Unit 4: Imperfect Competition

Unit 4: Imperfect Competition 1 Monopoly 2 Characteristics of Monopolies 3 5 Characteristics of a Monopoly 1. Single Seller One Firm controls the vast majority of a market The Firm IS the Industry 2. Unique

### Unit 4: Imperfect Competition

Unit 4: Imperfect Competition 1 FOUR MARKET STRUCTURES Perfect Competition Monopolistic Competition Oligopoly Pure Monopoly Imperfect Competition Every product is sold in a market that can be considered

### QOD #: 29: Graphing Practice w/ Mr. Clifford

LO1 10-1 AGENDA Thurs 10/29 Regulated Monopoly (FRQ 2011 & 2012) QOD #: 29: Graphing Practice w/ Mr. Clifford Price Discriminating Monopoly Monopolistic Competition & Oligopoly CH 8/9 Results/TC & Retakes

### Chapter 10 Lecture Notes

Chapter 10 Lecture Notes I. Pure Monopoly: An Introduction A. Definition: Pure monopoly exists when a single firm is the sole producer of a product for which there are no close substitutes. B. There are

10 Pure Monopoly McGraw-Hill/Irwin Copyright 2012 by The McGraw-Hill Companies, Inc. All rights reserved. Four Market Models Characteristics of the Four Basic Market Models Characteristic Number of firms

### Syllabus item: 57 Weight: 3

1.5 Theory of the firm and its market structures - Monopoly Syllabus item: 57 Weight: 3 Main idea 1 Monopoly: - Only one firm producing the product (Firm = industry) - Barriers to entry or exit exists,

### Use the following to answer question 4:

Homework Chapter 11: Name: Due Date: Wednesday, December 4 at the beginning of class. Please mark your answers on a Scantron. It is late if your Scantron is not complete when I ask for it at 9:35. Get

### INTERMEDIATE MICROECONOMICS LECTURE 13 - MONOPOLISTIC COMPETITION AND OLIGOPOLY. Monopolistic Competition

13-1 INTERMEDIATE MICROECONOMICS LECTURE 13 - MONOPOLISTIC COMPETITION AND OLIGOPOLY Monopolistic Competition Pure monopoly and perfect competition are rare in the real world. Most real-world industries

### ECON 202 2/13/2009. Pure Monopoly Characteristics. Chapter 22 Pure Monopoly

ECON 202 Chapter 22 Pure Monopoly Pure Monopoly Exists when a single firm is the sole producer of a product for which there are no close substitutes. There are a number of products where the producers

### AP Microeconomics Chapter 11 Outline

I. Learning Objectives In this chapter students should learn: A. The characteristics of pure monopoly. B. How a pure monopoly sets its profit-maximizing output and price. C. The economic effects of monopoly.

### AGENDA Mon 10/12. Economics in Action Review QOD #21: Competitive Farming HW Review Pure Competition MR = MC HW: Read pp Q #7

AGENDA Mon 10/12 Economics in Action Review QOD #21: Competitive Farming HW Review Pure Competition MR = MC HW: Read pp 173-176 Q #7 QOD #21: Competitive Farming A purely competitive wheat farmer can sell

### Market Structure & Imperfect Competition

In the Name of God Sharif University of Technology Graduate School of Management and Economics Microeconomics (for MBA students) 44111 (1393-94 1 st term) - Group 2 Dr. S. Farshad Fatemi Market Structure

### Principles of Microeconomics Module 5.1. Understanding Profit

Principles of Microeconomics Module 5.1 Understanding Profit 180 Production Choices of Firms All firms have one goal in mind: MAX PROFITS PROFITS = TOTAL REVENUE TOTAL COST Two ways to reach this goal:

### Figure: Computing Monopoly Profit

Name: Date: 1. Compared to perfect competition: A) monopoly produces more at a lower price. B) monopoly produces where MR > MC, and a perfectly competitively firm produces where P = MC. C) monopoly may

### FINALTERM EXAMINATION FALL 2006

FINALTERM EXAMINATION FALL 2006 QUESTION NO: 1 (MARKS: 1) - PLEASE CHOOSE ONE Compared to the equilibrium price and quantity sold in a competitive market, a monopolist Will charge a price and sell a quantity.

### MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

Exam Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Which of the following statements is correct? A) Consumers have the ability to buy everything

### Practice Exam 3: S201 Walker Fall with answers to MC

Practice Exam 3: S201 Walker Fall 2007 - with answers to MC Print Your Name: I. Multiple Choice (3 points each) 1. If marginal utility is falling then A. total utility must be falling. B. marginal utility

### MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

Micro - HW 4 MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) In central Florida during the spring, strawberry growers are price takers. The reason

### ECON 102 Kagundu Final Exam (New Material) Practice Exam Solutions

www.liontutors.com ECON 102 Kagundu Final Exam (New Material) Practice Exam Solutions 1. A A large number of firms will be able to operate in the industry because you only need to produce a small amount

### Chapter 15 Oligopoly

Goldwasser AP Microeconomics Chapter 15 Oligopoly BEFORE YOU READ THE CHAPTER Summary This chapter explores oligopoly, a market structure characterized by a few firms producing a product that mayor may

### Eco201 Review questions for chapters Prof. Bill Even ====QUESTIONS FOR CHAPTER 13=============================

Eco201 Review questions for chapters 13-15 Prof. Bill Even ====QUESTIONS FOR CHAPTER 13============================= 1) A monopoly has two key features, which are. A) barriers to entry and close substitutes

### Slides and Images, Worth Publishers Inc. 8-1

Perfect Competition Michael J. Murray Slides and Images, Worth Publishers Inc. 8-1 Market Structure Analysis By observing a few industry characteristics, we can predict pricing and output behavior of the

### Monopolistic Competition Oligopoly Duopoly Monopoly. The further right on the scale, the greater the degree of monopoly power exercised by the firm.

Oligopoly Monopolistic Competition Oligopoly Duopoly Monopoly The further right on the scale, the greater the degree of monopoly power exercised by the firm. Imperfect competition refers to those market

### CONTENTS. Introduction to the Series. 1 Introduction to Economics 5 2 Competitive Markets, Demand and Supply Elasticities 37

CONTENTS Introduction to the Series iv 1 Introduction to Economics 5 2 Competitive Markets, Demand and Supply 17 3 Elasticities 37 4 Government Intervention in Markets 44 5 Market Failure 53 6 Costs of

### Market Structures. Perfect competition Monopolistic Competition Oligopoly Monopoly

Market Structures The classification of market structures can be arranged along a continuum, ranging from perfect competition, the most competitive market, to monopoly, the lease competitive: Perfect competition

### AP Microeconomics Review Session #3 Key Terms & Concepts

The Firm, Profit, and the Costs of Production 1. Explicit vs. implicit costs 2. Short-run vs. long-run decisions 3. Fixed inputs vs. variable inputs 4. Short-run production measures: be able to calculate/graph

### Monopoly. Cost. Average total cost. Quantity of Output

While a competitive firm is a price taker, a monopoly firm is a price maker. A firm is considered a monopoly if... it is the sole seller of its product. its product does not have close substitutes. The

### Chapter 15: Industrial Organization

Chapter 15: Industrial Organization Imperfect Competition Product Differentiation Advertising Monopolistic Competition Oligopoly Collusion Cournot Model Stackelberg Model Bertrand Model Cartel Legal Provisions

### 14.1 Comparison of Market Structures

14.1 Comparison of Structures Chapter 14 Oligopoly 14-2 14.2 Cartels Cartel in Korea Oligopolistic firms have an incentive to collude, coordinate setting their prices or quantities, so as to increase their

### Principles of Microeconomics Assignment 8 (Chapter 10) Answer Sheet. Class Day/Time

1 Principles of Microeconomics Assignment 8 (Chapter 10) Answer Sheet Name Class Day/Time Questions of this homework are in the next few pages. Please find the answer of the questions and fill in the blanks

### Economic Analysis for Business Decisions Multiple Choice Questions Unit-2: Demand Analysis

Economic Analysis for Business Decisions Multiple Choice Questions Unit-2: Demand Analysis 1. The law of demand states that an increase in the price of a good: a. Increases the supply of that good. b.

### Monopolistic Competition

Monopolistic Competition CHAPTER16 C H A P T E R C H E C K L I S T When you have completed your study of this chapter, you will be able to 1 Describe and identify monopolistic competition. 2 Explain how

### Monopolistic Competition. Chapter 17

Monopolistic Competition Chapter 17 The Four Types of Market Structure Number of Firms? Many firms One firm Few firms Differentiated products Type of Products? Identical products Monopoly Oligopoly Monopolistic

### Recall from last time. Econ 410: Micro Theory. Cournot Equilibrium. The plan for today. Comparing Cournot, Stackelberg, and Bertrand Equilibria

Slide Slide 3 Recall from last time A Nash Equilibrium occurs when: Econ 40: Micro Theory Comparing Cournot, Stackelberg, and Bertrand Equilibria Monday, December 3 rd, 007 Each firm s action is a best

### Perfect Competition. Chapter 7 Section Main Menu

Perfect Competition What conditions must exist for perfect competition? What are barriers to entry and how do they affect the marketplace? What are prices and output like in a perfectly competitive market?

### AP Microeconomics. Content Skills Learning Targets Assessment Resources & Technology

St. Michael Albertville High School Teacher: Matthew Rooker AP Microeconomics October 2014 Content Skills Learning Targets Assessment Resources & Technology November 2014 Content Skills Learning Targets

### COST OF PRODUCTION & THEORY OF THE FIRM

MICROECONOMICS: UNIT III COST OF PRODUCTION & THEORY OF THE FIRM One of the concepts mentioned in both Units I and II was and its components, total cost and total revenue. In this unit, costs and revenue

### Market structures. Why Monopolies Arise. Why Monopolies Arise. Market power. Monopoly. Monopoly resources

Market structures Why Monopolies Arise Market power Alters the relationship between a firm s costs and the selling price Charges a price that exceeds marginal cost A high price reduces the quantity purchased

### 23 Perfect Competition

23 Perfect Competition Learning Objectives After you have studied this chapter, you should be able to 1. define price taker, total revenues, marginal revenue, short-run shutdown price, short-run breakeven

### Module 67: Introduction to Monopolisitic Competition

Module 67: Introduction to Monopolisitic Competition Schmidty School of Economics Learning Targets I Can Key Economic Concepts For This Module: Firms in monopolistic competition have downward sloping demand

### Chapter 10 Pure Monopoly

Chapter 10 Pure Monopoly Multiple Choice Questions 1. Pure monopoly means: A. any market in which the demand curve to the firm is downsloping. B. a standardized product being produced by many firms. C.

### Eco 202 Exam 2 Spring 2014

Eco 202 Exam 2 Spring 2014 PLEASE ANSWER 50 OF THE FOLLOWING QUESTIONS. 1. Jon Brooks quit his job in a bicycle shop, where he earned \$15,000 per year, to become a graduate student in economics. At the

### The "competition" in monopolistically competitive markets is most likely a result of having many sellers in the market.

Chapter 16 Monopolistic Competition TRUE/FALSE 1. The "competition" in monopolistically competitive markets is most likely a result of having many sellers in the market. ANS: T 2. The "monopoly" in monopolistically

### The Analysis of Competitive Markets

C H A P T E R 12 The Analysis of Competitive Markets Prepared by: Fernando & Yvonn Quijano CHAPTER 12 OUTLINE 12.1 Monopolistic Competition 12.2 Oligopoly 12.3 Price Competition 12.4 Competition versus

### Introduction. Learning Objectives. Learning Objectives. Chapter 27. Oligopoly and Strategic Behavior

Chapter 27 Oligopoly and Introduction On a typical day, United Parcel Service will transport over 10 million packages. UPS and its main rival, FedEx Ground, earn more than three-fourths of total revenue

### Section I (20 questions; 1 mark each)

Foundation Course in Managerial Economics- Solution Set- 1 Final Examination Marks- 100 Section I (20 questions; 1 mark each) 1. Which of the following statements is not true? a. Societies face an important

### 29/02/2016. Market structure II- Other types of imperfect competition. What Is Monopolistic Competition? OTHER TYPES OF IMPERFECT COMPETITION

Market structure II- Other types of imperfect competition OTHER TYPES OF IMPERFECT COMPETITION Characteristics of Monopolistic Competition Monopolistic competition is a market structure in which many firms

### Monopoly and How It Arises

Monopoly and How It Arises A monopoly is a market: That produces a good or service for which no close substitute exists In which there is one supplier that is protected from competition by a barrier preventing

### Chapter 7: Market Structures

SCHS SOCIAL STUDIES What you need to know UNIT THREE 1. Describe 4 conditions that are in place for a perfectly competitive market 2. Describe and give characteristics of a monopoly 3. Describe and give

### Monopoly. PowerPoint Slides prepared by: Andreea CHIRITESCU Eastern Illinois University

15 Monopoly PowerPoint Slides prepared by: Andreea CHIRITESCU Eastern Illinois University 1 Market power Why Monopolies Arise Alters the relationship between a firm s costs and the selling price Monopoly

### AP Microeconomics Chapter 10 Outline

I. Learning Objectives In this chapter students should learn: A. How the long run differs from the short run in pure competition. B. Why profits encourage entry into a purely competitive industry and losses

### Market Structure. Oligopoly

Market Structure Oligopoly Characteristics of Oligopoly The government does not intervene into the operations of the oligopolistically competitive firm in the market unless the oligopolist violates the

Chapter 14 TRADITIONAL MODELS OF IMPERFECT COMPETITION Copyright 2005 by South-Western, a division of Thomson Learning. All rights reserved. 1 Pricing Under Homogeneous Oligopoly We will assume that the

### MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

Review 10-14-15 MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1. The four-firm concentration ratio equals the percentage of the value of accounted

### Other examples of monopoly include Australia Post.

In this session we will look at monopolies, where there is only one firm in the market with no close substitutes. For example, Microsoft first designed the operating system Windows. As a result of this

### Introduction. Learning Objectives. Learning Objectives. Economics Today Twelfth Edition. Chapter 24 Monopoly

Roger LeRoy Miller Economics Today Twelfth Edition Chapter 24 Monopoly Introduction The cement market in Mexico is dominated by a single company that accounts for more than 70 percent of all sales. Why

### ECON December 4, 2008 Exam 3

Name Portion of ID# Multiple Choice: Identify the letter of the choice that best completes the statement or answers the question. 1. A fundamental source of monopoly market power arises from a. perfectly

### Chapter 7. Section 3: Monopolist Competition & Oligopoly

Chapter 7 Section 3: Monopolist Competition & Oligopoly Monopolist Competition Many companies compete in an open market to sell products that are similar but not identical Each firms hold a monopoly over

Teaching about Market Structures Felix B. Kwan, Ph.D. Professor of Econ/Finance, Maryville University AP Econ Conference - FRB St. Louis June 17-19, 2015 Profits Foundational Concepts Some basic terms/concepts

### Chapter Summary and Learning Objectives

CHAPTER 11 Firms in Perfectly Competitive Markets Chapter Summary and Learning Objectives 11.1 Perfectly Competitive Markets (pages 369 371) Explain what a perfectly competitive market is and why a perfect

### Perfect Competition Chapter 7 Section 1

Perfect Competition Chapter 7 Section 1 Four Conditions of Perfect Perfect competition is a market structure in which a large number of firms all produce the same product. Many buyers and sellers Identical

### iv. The monopolist will receive economic profits as long as price is greater than the average total cost

Chapter 15: Monopoly (Lecture Outline) -------------------------------------------------------------------------------------------------------------------------- Monopolies have no close competitors and,

### Chapter 14 Perfectly competitive Market

Chapter 14 Perfectly competitive Market But first lets look at this Profit Maximization Profit Maximization This occurs where marginal revenue (MR) = marginal cost (MC). MR = MC Marginal revenue is the

### ECONOMICS. Paper 3 : Fundamentals of Microeconomic Theory Module 28 : Non collusive and Collusive model

Subject Paper No and Title Module No and Title Module Tag 3 : Fundamentals of Microeconomic Theory 28 : Non collusive and Collusive model ECO_P3_M28 TABLE OF CONTENTS 1. Learning Outcomes 2. Introduction

### Chapter 6. Competition

Chapter 6 Competition Copyright 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 1-1 Chapter 6 The goal of this

### Econ 2113: Principles of Microeconomics. Spring 2009 ECU

Econ 2113: Principles of Microeconomics Spring 2009 ECU Chapter 12 Monopoly Market Power Market power is the ability to influence the market, and in particular the market price, by influencing the total

### Monopoly CHAPTER. Goals. Outcomes

CHAPTER 15 Monopoly Goals in this chapter you will Learn why some markets have only one seller Analyze how a monopoly determines the quantity to produce and the price to charge See how the monopoly s decisions

### The above Figure 1 shows the demand and cost curves facing a monopolist.

Practice 13&14 1) The key characteristics of a monopolistically competitive market structure include A) few sellers. B) sellers selling similar but differentiated products. C) high barriers to entry. D)

### Monopolistic Markets. Causes of Monopolies

Monopolistic Markets Causes of Monopolies The causes of monopolization Monoplositic resources Only one firm owns a resource which is crucial for production (e.g. diamond monopol of DeBeers). Monopols created

### Refer to the information provided in Figure 12.1 below to answer the questions that follow. Figure 12.1

1) A monopoly is an industry with A) a single firm in which the entry of new firms is blocked. B) a small number of firms each large enough to impact the market price of its output. C) many firms each

### VIII 1 TOPIC VIII: MONOPOLY AND OTHER INDUSTRY STRUCTURES. I. Monopoly - Single Firm With No Threat of Close Competition. Other Industry Structures

TOPIC VIII: MONOPOLY AND OTHER INDUSTRY STRUCTURES I. Monopoly - Single Firm With No Threat of Close Competition II. Other Industry Structures CONCEPTS AND PRINCIPLES MONOPOLY We now consider the opposite

### Lecture 5 Competition, Monopoly, Monopolistic Competition and Oligopoly

Lecture 5 Competition, Monopoly, Monopolistic Competition and Oligopoly 1 Overview Firm supply decisions in a perfectly competitive market Short run supply Long run supply Competitive equilibrium Monopoly

### 7-3: Monopolistic Competition and Oligopolies Notes

7-3: Monopolistic Competition and Oligopolies Notes Learning Target 1. I will demonstrate my understanding of the characteristics of monopolistically competitive firms and oligopolies. Monopolistic Competition

### a. Sells a product differentiated from that of its competitors d. produces at the minimum of average total cost in the long run

I. From Seminar Slides: 3, 4, 5, 6. 3. For each of the following characteristics, say whether it describes a perfectly competitive firm (PC), a monopolistically competitive firm (MC), both, or neither.

### Economics 101 Midterm Exam #2. April 9, Instructions

Economics 101 Spring 2009 Professor Wallace Economics 101 Midterm Exam #2 April 9, 2009 Instructions Do not open the exam until you are instructed to begin. You will need a #2 lead pencil. If you do not

### Introduction. Learning Objectives. Chapter 24. Perfect Competition

Chapter 24 Perfect Competition Introduction Estimates indicate that since 2003, the total amount of stored digital data on planet Earth has increased from 5 exabytes to more than 200 exabytes. Accompanying

### A monopoly market structure is one characterized by a single seller of a unique product with no close substitutes.

These notes provided by Laura Lamb are intended to complement class lectures. The notes are based on chapter 12 of Microeconomics and Behaviour 2 nd Canadian Edition by Frank and Parker (2004). Chapter

### AQA Economics A-level

AQA Economics A-level Microeconomics Topic 5: Perfect Competition, Imperfectly Competitive Markets and Monopoly 5.5 Oligopoly Notes Characteristics of an oligopoly: High barriers to entry and exit There

### AQA Economics A-level

AQA Economics A-level Microeconomics Topic 5: Perfect Competition, Imperfectly Competitive Markets and Monopoly 5.6 Monopoly and monopoly power Notes Characteristics of monopoly: Monopolies can be characterised

### Microeconomics (Oligopoly & Game, Ch 12)

Microeconomics (Oligopoly & Game, Ch 12) Lecture 17-18, (Minor 2 coverage until Lecture 18) Mar 16 & 20, 2017 CHAPTER 12 OUTLINE 12.1 Monopolistic Competition 12.2 Oligopoly 12.3 Price Competition 12.4

### 2007 Thomson South-Western

BETWEEN MONOPOLY AND PERFECT COMPETITION Imperfect competition refers to those market structures that fall between perfect competition and pure monopoly. Imperfect competition includes industries in which

### GCE. Edexcel GCE Economics (6354) Summer Edexcel GCE. Mark Scheme (Results) Economics (6354)

GCE Edexcel GCE Economics (654) Summer 2005 Mark Scheme (Results) Edexcel GCE Economics (654) 654/0 MARK SCHEME June 2005 Question Scheme Marks () A (2) B () E (4) E Definition of marginal revenue () and

### Monopoly Monopoly occurs when there is a single seller of a good or service. Despite this simple definition that is usually given in textbooks, we

Monopoly Monopoly occurs when there is a single seller of a good or service. Despite this simple definition that is usually given in textbooks, we must criticize it a bit. Monopoly occurs when there is

### Monopolistic Competition

CHAPTER 16 Monopolistic Competition Goals in this chapter you will Examine market structures that lie between monopoly and competition Analyze competition among firms that sell differentiated products

### 1 of 38 4/29/14 10:16 PM

1. award: Refer to Figure 1.8. If the university decides to lower grading standards, then This curve will shift rightward. This curve will pivot up and to the left. The curve will begin to bend downward

### Monopoly. 3 Microeconomics LESSON 5. Introduction and Description. Time Required. Materials

LESSON 5 Monopoly Introduction and Description Lesson 5 extends the theory of the firm to the model of a Students will see that the profit-maximization rules for the monopoly are the same as they were

### Monopoly CHAPTER 15. Henry Demarest Lloyd. Monopoly is business at the end of its journey. Monopoly 15. McGraw-Hill/Irwin

CHAPTER 15 Monopoly Monopoly is business at the end of its journey. Henry Demarest Lloyd McGraw-Hill/Irwin Copyright 2010 by the McGraw-Hill Companies, Inc. All rights reserved. A Monopolistic Market A

### 1. Supply and demand are the most important concepts in economics.

Page 1 1. Supply and demand are the most important concepts in economics. 2. Markets and Competition a. Def: Market is a group of buyers and sellers of a particular good or service. P. 66. b. Def: A competitive

### Economics. Monopoly. N. Gregory Mankiw. Premium PowerPoint Slides by Vance Ginn & Ron Cronovich C H A P T E R P R I N C I P L E S O F

C H A P T E R Monopoly Economics P R I N C I P L E S O F N. Gregory Mankiw Premium PowerPoint Slides by Vance Ginn & Ron Cronovich 2009 South-Western, a part of Cengage Learning, all rights reserved In

### CHAPTER NINE MONOPOLY

CHAPTER NINE MONOPOLY This chapter examines how a market controlled by a single producer behaves. What price will a monopolist charge for his output? How much will he produce? The basic characteristics

### Perfect competition: occurs when none of the individual market participants (ie buyers or sellers) can influence the price of the product.

Perfect Competition In this section of work and the next one we derive the equilibrium positions of firms in order to determine whether or not it is profitable for a firm to produce and, if so, what quantities

### ECON 2100 Principles of Microeconomics (Summer 2016) Monopoly

ECON 21 Principles of Microeconomics (Summer 216) Monopoly Relevant readings from the textbook: Mankiw, Ch. 15 Monopoly Suggested problems from the textbook: Chapter 15 Questions for Review (Page 323):

### ECO110HA: Module 6 AVP Transcript Title: Firm Decisions and the Pursuit of Profit. Title Slide. Narrator: Firm Decisions and the Pursuit of Profit.

ECO110HA: Module 6 AVP Transcript Title: Firm Decisions and the Pursuit of Profit Title Slide Narrator: Firm Decisions and the Pursuit of Profit. Slide 2 Title: Market Structures Characteristics Number

### Extra Credit. Student:

Extra Credit Student: 1. A glass company making windows for houses also makes windows for other things (cars, boats, planes, etc.). We would expect its supply curve for house windows to be: A. Dependent

### Lecture 11 Imperfect Competition

Lecture 11 Imperfect Competition Business 5017 Managerial Economics Kam Yu Fall 2013 Outline 1 Introduction 2 Monopolistic Competition 3 Oligopoly Modelling Reality The Stackelberg Leadership Model Collusion

### Edexcel (B) Economics A-level

Edexcel (B) Economics A-level Theme 4: Making Markets Work 4.1 Competition and Market Power 4.1.1 Spectrum of competition Notes Characteristics of monopoly, oligopoly, imperfect and perfect competition

### Special Pricing Practices. Managerial Economics: Economic Tools for Today s Decision Makers, 4/e

Special Pricing Practices Chapter 11 Managerial Economics: Economic Tools for Today s Decision Makers, 4/e By Paul Keat and Philip Young Special Pricing Policies Introduction Cartel Arrangements Revenue