Econ+140-+ch+8+additional+notes

Econ+140-+ch+8+additional+notes - Ch 8 Additional Notes...

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Unformatted text preview: Ch 8 Additional Notes Market structure Market structure involves the number of firms in the market and the barriers to entry. Perfect competition, with an infinite number of firms, and monopoly, with a single firm, are polar opposites. Monopolistic competition and oligopoly lie between these two extremes. Perfect Competition A perfectly competitive market must meet the following characteristics: Both buyers and sellers are price takers. The number of firms is large. There are no barriers to entry. The firms' products are identical. There is complete information. Firms are profit maximizers. Characteristics of Perfect Competition ( cont.) Both buyers and sellers are price takers. A price taker is a firm or individual who takes the market price as given. In most markets, households are price takers they accept the price offered in stores. Characteristics of Perfect Competition ( cont.) The number of firms is large. Large means that what one firm does has no bearing on what other firms do. Any one firm's output is minuscule when compared with the total market. Characteristics of Perfect Competition ( cont.) There are no barriers to entry. Barriers to entry are social, political, or economic impediments that prevent other firms from entering the market. Barriers sometimes take the form of patents granted to produce a certain good. Technology may prevent some firms from entering the market. Social forces such as bankers only lending to certain people may create barrier Characteristics of Perfect Competition ( cont.) The firms' products are identical. This requirement means that each firm's output is indistinguishable from any competitor's product. Characteristics of Perfect Competition ( cont.) There is complete information. Firms and consumers know all there is to know about the market prices, products, and available technology. Any technological advancement would be instantly known to all in the market Characteristics of Perfect Competition ( cont.) Firms are profit maximizers. The goal of all firms in a perfectly competitive market is profit and only profit. Firm owners receive only profit as compensation, not salaries. Demand Curves for the Firm and the Industry The demand curves facing the firm is different from the industry demand curve....
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Econ+140-+ch+8+additional+notes - Ch 8 Additional Notes...

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