Chapter 14 Summary

Chapter 14 Summary - Chapter 14 Summary Monopolies Two key items to watch for in determining the type of market structure(1 The number of

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Chapter 14 Summary: Monopolies Two key items to watch for in determining the type of market structure: (1) The number of producers (one, few, many), and (2) Whether the products offered are identical or differentiated. Perfect Competition … many producers selling an identical product. A producer in this industry faces a horizontal demand curve. Translated: they have no impact on market price whatsoever. No action by the producer to produce more or less has any impact on market price. All products are perfect substitutes. No long-run profits for producers, as there is easy entry and exit by new businesses. Monopolistic Competition … many producers selling a differentiated product. ‘Differentiated ’ for you: it means these goods are different, but considered somewhat substitutable by consumers. It depends upon the eyes and tastes of consumers. Because they have market power, they face a Downward sloping demand curve . Oligopoly … just a few producers (more than one, but not a large number) whose products may be either identical or differentiated. Brand loyalty is big here. They also have market power, so they face a Down- ward sloping demand curve. Monopoly … a sole producer of a product that has no close substitutes . They are ‘price makers’. Short- run and long-run profits exist. Barriers to entry are huge and prevent other firms from entering the industry. They have tremendous market power, so they face a Downward sloping demand curve . Their actions affect market prices and they take that into account when deciding how much to produce. What determines the number of firms in a market? (1) ease or difficulty entering the market. Government regulations (patents, licenses); (2) economies of scale in production (cost savings associated with increased output). Natural Monopolies: namely, utilities; (3)technological superiority. The firm possessing the largest network and the largest number of customers has advantages over competitors. Example: Microsoft; and
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This note was uploaded on 01/23/2012 for the course ECON 202 taught by Professor Hammond during the Fall '11 term at Boise State.

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Chapter 14 Summary - Chapter 14 Summary Monopolies Two key items to watch for in determining the type of market structure(1 The number of

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