Chapter 7.pdf - 7 Market Structures To ponder uponu2026 Do...

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7 Market Structures
To ponder upon… Do we use economics everyday? Have you heard that monopoly is to be blamed for high prices of electricity in South Africa? What does this mean? Have you heard from a shop owner that does not like the fact that a similar shop opened close by? Do you agree? Have you heard that competition is only good for the consumers? How would you explain that?
In this chapter you will learn: The names and main characteristics of the four basic market models Which are the conditions for perfect competition How purely competitive firms maximize profits or minimize losses Why the marginal cost and supply curves for competitive firms are identical The characteristics of pure monopoly How pure monopoly sets profit maximizing output and price The economic effects of monopoly The characteristics of monopolistic competition The characteristics of oligopoly
Where from now? Summary of four market models Pure competitio n Pure competitio n: Profit maximizat ion Monopoly Monopoly: Profit maximizat ion Economic effects of monopoly Monopolistic competition and Oligopolies
Four market models Market structure continuum Pure Competition Monopolistic Competition Oligopoly Pure Monopoly Imperfect Competition
Four market models Aspects that differentiate the market structures Number of firms in the industry Production of standardised or differentiated product Difficulty to enter or exit the industry
Four market models Pure competition Very large number of firms, standardised product, very easy entry/exit to and from industry Pure monopoly One firm, unique product, entry/exit is completely blocked Monopolistic competition Large number of sellers, differentiated product, non-price competition, entry/exit quite easy Oligopoly Few sellers, standardised or differentiated product.
Pure competition Number of sellers Very large number of independently acting sellers. Offering products in large national or international markets. Standardised product Identical or homogeneous product If price is the same, consumers will be indifferent about which seller to buy from. No non-price competition techniques. Price takers No significant control over product price. Small fraction of the market produced by each firm. The competitive firm cannot change the market price. Free entry and exit No significant legal, technological, financial or other obstacles.
Pure competition Number of sellers Standardised product Price takers Free entry and exit Based on the main characteristics of pure competition, is the market for apples considered pure competition?
Pure competition Perfectly elastic demand of an individual firm • The firm cannot obtain a higher price by restricting its output nor can it increase its sales volume by increasing its price.

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