Perfect Competition
Give the 5 traits of a market with perfect competition
(HINT: number of firms competing, nature of product, entry, information availability, firm's control over price)
- There is a LARGE NUMBER OF FIRMS in the market
- The products being sold are all the SAME/ UNDIFFERENTIATED
- There are NO BARRIERS TO ENTRY
- Information availability is COMPLETE/ everyone knows all market secrets
- NO firm has CONTROL over the prices
Give the 5 traits of a market with monopolistic competition
(HINT: number of firms competing, nature of product, entry, information availability, firm's control over price)
- There is a LARGE NUMBER OF FIRMS in the market
- The products being sold DIFFERENTIATED
- There are FEW BARRIERS TO ENTRY/ easy to enter and leave
- Information availability is RELATIVELY GOOD
- SOME firms have CONTROL over the prices
Give the 5 traits of an oligopoly
(HINT: number of firms competing, nature of product, entry, information availability, firm's control over price)
1. There are a SMALL NUMBER OF FIRMS in the market
2. The products being sold can be DIFFERENTIATED OR UNDIFFERENTIATED
3. There are MANY BARRIERS TO ENTRY
4. Information Availability is ASYMMETRIC/UNEQUAL
5. Firms have SOME CONTROL over the price
Give the 5 traits of a monopoly
(HINT: number of firms competing, nature of product, entry, information availability, firm's control over price)
1. There is a JUST ONE FIRM in the market
2. The products being sold are UNIQUE
3. ENTRY IS BASICALLY BLOCKED
4. Information Availability is ASYMMETRIC/UNEQUAL
5. Firm has SUBSTANTIAL CONTROL over the price
What is our professor's name, the full name of this class, and our class code?
Dr. Florian Gerth, PhD
Principles of Microeconomics
Econ 2302
Since the price of goods in perfect competition are all the same for all firms, what does this imply about the nature of the demand, marginal revenue (MR) and average revenue (AR) curve?
The curves are all perfectly elastic.
Because the firm’s marginal-cost (MC) curve determines the quantity of the good the firm is willing to supply at any price, the marginal-cost curve is also the competitive firm’s ___ ___.
This concept from both economics and game theory refers to the situation wherein all players have an “optimal strategy” and would not benefit from doing anything differently.
(Hint: Prisoner’s Dilemma)
Nash Equilibrium
What are the three main barriers to entry in a market?
Resource Monopoly, Government Regulation, and The Production Process
How can a Farmers' Market have a Perfect Competition market structure?
Many farmers sell fruits and vegetables.
All fruits and vegetables look and taste the same so there is no difference.
I can plant my own fruits and vegetables and sell them so there are no barriers to entry.
I know how to plant fruits and vegetables and so do my competitors so all the information is available.
I sadly can’t influence the market price with my fruits and vegetables.
The marginal cost (MC) curve intersects the average total cost (ATC) curve at the ___ of the ATC curve. Why is this a crucial point?
minimum; this is where firms are producing at the lowest average cost per unit of output
Why can a monopolistic competition behave like a monopoly in the short run and make profits?
Technology advancements/differentiation can generate profit in the short run.
This makes the graph act like a monopoly and maximizes profit where marginal revenue = marginal cost (MR=MC)
If the 1. (output/price) effect outweighs the 2. (output/price) effect, then the firm should 3. (increase/decrease) production.
There are two (2) correct answers, either will be accepted.
1. output,
2. price, and
3. increase
OR
1. price,
2. output, and
3. decrease
A monopoly’s price equals its’ demand curve, meaning that a monopoly’s demand curve also equals what curve?
Average-Revenue Curve
True or False: Prof. Florian lived in Dubai for 7 years.
False
Why is there a short-run profit from a market with perfect competition?
In the short run, the market price is higher than the intersection of the marginal cost (MC) curve and the average total cost (ATC) curve, hence allowing profit to be made.
Refer to the green box in the slides
What is the criteria for a firm in a monopolistic market to shut down?
Shut down if the good's price is less than the average variable cost (P<AVC)
Why do repeated meetings affect a peoples' choice to collaborate compared to one time scenarios?
Future Profits / Agreements
Why is a monopolists’ Marginal Revenue lower than the price of its’ good?
Monopolies have a downward demand slope, meaning that in order to sell more of a good, its price must drop, resulting in losses from goods that would have otherwise sold for higher.
What is illegal but necessary for oligopolies?
Price-fixing or collusion !
Why is there no profit to be made from a market with perfect competition in the long run?
As more firms enter the market in the long run, the supply curve shifts to the right, lowering the market price until 0 profit is made.
Why is there no profits (normal profits) to be made in the long run?
In the long run, other firms will enter the market and reduce demand for existing firms, thereby bringing prices down.
The demand curve shifts to the left and the market will eventually go to an equilibrium normal profit where average total cost = average revenue (ATC=AR)
Refer to graph in slides.
As more firms enter an oligopoly, it begins to resemble a competitive market more and more. Why?
The more firms that enter an oligopoly, the smaller the market share of each individual firm which reduces their control on the market price.
Do monopolies have deadweight loss? If yes, how would they reduce it?
Yes; through proper price discrimination.
Efficiency or Equality?
Efficiency: Gain 500 points!
Equality: Oops! The lowest team steals 500 points from the highest team!