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THE MARKET STRUCTURE
BY: Mr. Gayares
Perfect Competition
• Pure competition• Large number of
firms all producing essentially the same product
• Assumes that firms and buyers are “price-takers”
4 conditions for perfect competition
• Many buyers and sellers participate in the market
• Sellers offer identical products
• Buyers and sellers are well-informed about products (perfect knowledge)
• Sellers are able to enter and exit the market freely
TERMS
• Barriers to entry- any factor that makes it difficult to a new firm to enter a market
• Start-up costs-the expenses a firm must pay before it can begin to produce and sell goods
• Commodity- a product is the same no matter who produces it
• Competition makes the market efficient
Perfect Competition summaryNUMBER OF FIRMS: MANY
VARIETY OF GOODS: NONE
BARRIERS TO ENTRY: NONE
CONTROL OVER PRICES: NO CONTROLNo contro
l
MONOPOLY
MONOPOLY
• A MARKET DOMINATED BY A SINGLE SELLER
• Can you cite some example where there is only one seller? What are the advantages and disadvantages?
Monopoly FeaturesNUMBER OF FIRMS: NONE
VARIETY OF GOODS: NONE
BARRIERS TO ENTRY: COMPLETE
CONTROL OVER PRICES: NO CONTROLCOMPLETE
control
Advantages of monopoly
• Assurance of supply• Natural monopoly- a market that runs most
efficiently when one large firm supplies all of the product
• Ex: dam, electric company, television
Monopolist’s dilemma
• Can you tell what it is?• Price discrimination• Discounts• rebates
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