The document provides background information and instructions for a multi-part microeconomics assignment regarding market structures and movie theaters. It includes details about four movie theaters in a town, their characteristics, and market structure definitions. It asks the student to define the market structure for movie theaters in the town based on the information provided, recommend marketing strategies for one theater given the identified market structure, and discuss potential issues with a proposed merger between two theaters.

1. ECO 2301 Microeconomics
micro economics multi-part question and need the explanation and answer to help me
learn.
Please provide an answer that is 100% original and do not copy the answer to this question
from any other website since I am already well aware of this. I will be sure to check this.
Please be sure that the answer comes up with way less than 18% on Studypool's internal
plagiarism checker since anything above this is not acceptable according to Studypool's
standards. I will not accept answers that are above this standard.
Instructions
You are continuing to serve as a private economic consultant for Ruby Red Movie Theater in
town. The theater is starting to work on its marketing plan to draw more customers into the
theater. Manager Tracy has provided you with the necessary information concerning
various characteristics of the theater’s market.
Complete the Unit VI Assignment Worksheet. This worksheet contains information and a
series of questions concerning the market structure for the theater. Each of your answers
must be at least 300 words in length Times New Roman Size 12 Font Double-Spaced APA
Format Excluding the Title and Reference Pages.
APA Style will not be required for this assignment.
Once you have completed the worksheet, upload your completed Unit VI Assignment for
review.
Requirements: 300 Words Per Question Times New Roman Size 12 Font Double-Spaced
APA Format Excluding the Title and Reference Pages
Please provide an answer that is 100% original and do not copy the answer to this question
from any other website since I am already well aware of this. I will be sure to check this.
Please be sure that the answer comes up with way less than 18% on Studypool's internal
plagiarism checker since anything above this is not acceptable according to Studypool's
standards. I will not accept answers that are above this standard.
Please be sure to carefully follow the instructions
No plagiarism & No Course Hero & No Chegg. The assignment will be checked for originality
via the Turnitin plagiarism tool
Please be sure to include at least one in-text citation in each paragraph
Please be sure to use credible or scholarly sources
Requirements: 300 Words Per Question Times New Roman Size 12 Font Double-Spaced

2. APA Format Excluding the Title and Reference Pages
Unit VI Assignment Background Information
Ruby Red Theater is now starting to work on its marketing plan to draw more customers
into the theater. Manager Tracy has provided you with the following information and asked
for your help:
There are four movie theaters in the town (Ruby Red, Grayson's Guild, Ryne's Reel 2 Reel,
and Garrett's Dollar Movies).
The city has passed a law banning any other movie theaters from building within the city
limits.
All movie theaters offer similar types of concession stand items at similar prices.
The average ticket prices per movie at each theater are:
The first movie and last movie start times for the four theaters are:
The average number of people who purchase tickets at each movie theater in town per
month is:
Grayson's Guild and Ryne's Reel 2 Reel offer a special "Two-for-One Tuesday" where you
can purchase two tickets for the price of one.
Grayson's Guild and Ryne's Reel 2 Reel just purchased the latest Goldby Surround Sound for
their movie theaters.
You recall that your economics instructor at Columbia Southern University had presented
you with a table that outlined the four market structure types and their characteristics.
After searching through your old notes from Columbia Southern University, you found the
table, which is presented below:
Answer the questions on the next page. Your answers must be a minimum of 300 words in
length for each question.
Unit VI Assignment
Part 1:
Using the provided table that outlined the various characteristics of each market structure
type and the information provided by Manager Tracy from Ruby Red Movie Theater, define
the market structure (perfectly competitive, monopolistically competitive, oligopoly, or
monopoly) for the movie theater market of this town. Discuss each market structure
characteristic as it either relates or does not relate to the movie theater market for this
town. Make sure you address all four market structures and each market structure
characteristic in your discussion.
If you need additional space, please feel free to insert an additional page.
Your Answer:
Part 2:
Given the market structure you have identified for the movie theater industry in this town,
what marketing ideas would you recommend for Ruby Red Movie Theater?
If you need additional space, please feel free to insert an additional page.
Your Answer:
Part 3

3. Grayson’s Guild Movie Theater has made an offer to purchase Ryne’s Reel 2 Reel Movie
Theater. The merger would result in both theaters operating under the same business
ownership. What problems would this merger cause for Ruby Red Movie Theater? Could the
government have issues with this merger?
If you need additional space, please feel free to insert an additional page.
Your Answer:
ECO 2301, Principles of Microeconomics 1 Course Learning Outcomes for Unit VI Upon
completion of this unit, students should be able to: 3. Discuss types of economic market
structures. 3.1 Identify the characteristics of a perfectly competitive, monopoly,
monopolistically competitive, and oligopoly market structure. 3.2 Describe the behavior of
firms in an oligopoly market structure. 5. Recall the theories of economic regulation. 5.1
Recall how government regulates markets when they are not perfectly competitive.
Course/Unit Learning Outcomes Learning Activity 3.1 Unit Lesson Chapter 8 Chapter 9
Chapter 10 Video: Market Structure Unit VI Assignment 3.2 Unit Lesson Chapter 10 Video:
Market Structure Webpage: Monopolization Defined Unit VI Assignment 5.1 Unit Lesson
Chapter 9 Chapter 10 Webpage: Monopolization Defined Webpage: Competition and
Monopoly: Single-Firm Conduct Under Section 2 of the Sherman Act: Chapter 2 Unit VI
Assignment Required Unit Resources Chapter 8: Perfect Competition Chapter 9:
Monopoly Chapter 10: Monopolistic Competition and Oligopoly In order to access the
following resources, click the links below. Antitrust Division. (2015, June 25). Competition
and monopoly: Single-firm conduct under Section 2 of the Sherman Act: Chapter 2. The
United States Department of Justice. https://www.justice.gov/atr/competition-and-
monopoly-single-firm-conduct-under-section-2-sherman-act-chapter-2 Federal Trade
Commission. (2017, December 14). Monopolization defined. https://www.ftc.gov/tips-
advice/competition-guidance/guide-antitrust-laws/single-firm-conduct/monopolization-
defined UNIT VI STUDY GUIDE Market Structure and Economic Regulation
ECO 2301, Principles of Microeconomics 2 UNIT x STUDY GUIDE Title Unit Lesson Market
structure is a term used to describe the important aspects of a market. These aspects
include the number of firms in the market, how identical or different the products in a
market are, how easy or difficult it is to enter or exit the market, and how firms compete in
the market (McEachern, 2019). In this unit, you will examine the various types of market
structures, how each market structure competes, and how each market structure makes
decisions regarding profit maximization. Perfect Competition On one end of the spectrum
of market structures is perfect competition. The term perfect competition does not mean
that this type of market structure is ideal. Perfect competition is actually the most basic of
all market structure types. McEachern (2019) suggests that the characteristics of a perfectly
competitive market structure include the characteristics listed below. • There is an
abundance of buyers and sellers. In fact, there are so many buyers and sellers that no one
buyer or seller can influence the market at all by their actions. • The commodity in the
market is standardized, and each firm sells an identical product. This is called a
homogeneous product. • Buyers have full information regarding the prices and production
processes. • Firms and resources can easily enter and exit the market without obstacles. In
other words, there are no barriers to entry and exit. • Prices are determined by the market

4. instead of by the individual firms in the market. This means that firms in perfect
competition are price takers. • Economic profits in the long run are reduced to zero. One
market that is often used as an example of a perfectly competitive market structure is
production agriculture. Below, each of the characteristics of a perfectly competitive market
structure is discussed as it applies to production agriculture. Number of Sellers and Buyers
In examining production agriculture as a perfectly competitive market structure, let’s look
at corn. According to the National Agricultural Statistics Service (2017), there are 304,801
corn farms in the United States, which harvested a combined total of 84,738,562 acres of
corn. To put the number of individual corn farms in perspective, there are approximately
11,500 individual Walmart stores in the entire world (Walmart, n.d.). This means that there
are more than 26.5 times more corn farms in the United States than there are Walmart
stores in the entire world! That is an example of a market with an abundance of sellers.
Buyers of corn are just as abundant. Everyone, from large firms such as Green Giant to
individuals such as yourself who may purchase a few cobs of corn to cook on a summer day,
represents buyers in the corn market. Effectively, the number of buyers of corn in the
United States could be close to the population of the nation. Again, this represents a very
large number of buyers. Finally, the fact that no one individual buyer or seller can influence
the market is extremely important when discussing a perfectly competitive market
structure. Given the total number of corn farms in the United States and the total harvested
acres of corn, the average size of a corn farm is just over 278 acres. To some, this may seem
like a large number of acres. However, one average farm only represents approximately
0.0003% of the total acreage of corn in the nation. Needless to say, one corn farmer deciding
to make a change would not have any influence on the market at all. Also, your deciding to
abstain from eating any corn for the rest of your life would not have any influence on the
market at all. Type of Product A product that is homogeneous is considered to be identical.
Corn is measured in a standardized unit, which is bushels. A buyer would not care if they
purchase one bushel of corn produced by a farmer in Iowa versus buying one bushel of corn
produced by a farmer in Texas because both products are identical.
ECO 2301, Principles of Microeconomics 3 UNIT x STUDY GUIDE Title Buyer Information
When you go to the store, you know exactly what you are looking at when you see an ear of
corn. You have access to full information regarding weather trends that have impacted the
production of corn. You have access to information regarding the average price of an ear of
corn. You have access to all information regarding the market for the ear of corn you are
deciding whether or not to purchase. Barriers to Entering and Exiting the Market There are
no barriers to entering or exiting the corn-growing market. Any individual who wants to
become a corn farmer can do so without having to pass any test, complete any paperwork,
or apply for a license. All that is needed to become a corn farmer would be to rent or
purchase land, rent or purchase machinery, and purchase variable inputs such as seed,
fertilizer, fuel, and labor. Also, there is nothing stopping any corn farmer who wants to exit
the industry from doing so. All the corn farmer would need to do to exit the industry is to
stop farming corn. Price-Setting Power Corn prices are determined by the market. In other
words, equilibrium supply and demand determine what a bushel of corn is worth. If one
corn farmer attempted to set their price higher than the equilibrium price, buyers would

5. just turn to one of the other 304,800 corn farms in the United States to purchase corn. This
means that corn farmers must accept the market price for their corn, or they will not sell
any corn at all. We call this a price taker. Farmers cannot set their own price for corn and
must “take” the price determined by the market. Economic Profits This characteristic is
based on no barriers to entry and exit. If corn farmers are experiencing profits in the short
run, more farmers will start producing corn because there are no barriers to entering the
market. As we learned in Unit II, as more firms enter the market, the supply curve shifts to
the right. As the supply curve shifts to the right, equilibrium price falls. As equilibrium price
falls, profits are reduced. Farmers will continue to farm more corn until economic profits
are reduced to zero. The opposite is true if short-run economic profits are negative. When
short-run economic profits for producing corn are negative, the most inefficient corn
farmers will stop farming corn. As the number of firms that produce corn are reduced, the
supply curve shifts to the left. The supply curve shifting to the right causes equilibrium price
to increase, which increases profits. Inefficient farmers will continue to stop farming corn
until economic profits are increased to zero. Monopolistic Competition Monopolistic
competition closely resembles perfect competition. It is important to note that monopolistic
competition does not mean a monopoly; we will address a monopoly a little later.
Monopolistic competition exists when there are many buyers and sellers in the market, with
slight differences in the products being offered. McEachern (2019) suggests the
characteristics of a monopolistically competitive market structure include: • a large
number of buyers and sellers, • goods or services being sold that are slightly different, • low
barriers to entry, • firms that can set their own prices, and • firms that cannot earn
economic profits in the long run. Notice that many of the characteristics of a
monopolistically competitive market structure are similar to a perfectly competitive market
structure. The main differences are the differentiated product and firms being able to set
their own prices. An example of a monopolistically competitive market structure would be
restaurants. Below are the characteristics of a monopolistically competitive market
structure as they apply to restaurants.
ECO 2301, Principles of Microeconomics 4 UNIT x STUDY GUIDE Title Number of Sellers
and Buyers The number of sellers in a monopolistically competitive market structure are
not as many as in a perfectly competitive market structure, but there are still many firms in
operation. Think about the number of restaurants that are in even a medium-sized town.
There may be upscale restaurants, fast food restaurants, and mom-and-pop restaurants.
Each one of these restaurants competes for customers with the others in town. In terms of
buyers in a monopolistically competitive market structure, there is a vast number. In fact,
there are so many buyers in a monopolistically competitive market structure that one
individual buyer cannot influence the market. Again, think about restaurants in a city. The
buyers of food at restaurants (customers) come not only from the population of the city
itself but also include people living in nearby cities and visitors to the area from other
locations that could be far away. If one buyer decides to only eat at home, the restaurant
market prices will not change. This suggests that buyers (customers) in the restaurant
industry have very little influence over market prices. Type of Product In a
monopolistically competitive market structure, the goods or services offered are different

6. among sellers. Often, this product differentiation is the cornerstone of the firm because it is
what draws customers in through the door. These differences can be physical in nature due
to location, the accompanying services offered, or even product image (McEachern, 2019).
Physical differences are the most obvious. Different packaging, a distinctive shape, or a
distinguishing smell are all examples of how a product can be differentiated. For example,
there is a distinct difference in smell between a restaurant serving steaks versus one that
serves pasta. There is also a difference between the noise levels that would be found at an
upscale restaurant versus that found at a diner. Monopolistically competitive firms can also
differentiate themselves based on location. Some restaurants are located along a busy road.
Other restaurants are located off the beaten path and may even require Google Maps to find
them. Obviously, the restaurant located along the busy road has differentiated itself from
the “out-of-the-way” restaurant due to location. Both may serve the exact same food, but
one has a better location than another. Additional services offered by monopolistically
competitive firms can also help in product differentiation. Additional services such as nice
tablecloths, food delivered to your table, a nice presentation of the food on a plate, and
possibly even a restaurant assistant to hand you a towel in the restroom are expected in a
fine dining establishment. This level of service would be vastly different at a fast food
restaurant. The fine dining establishment is not just offering the food but also a relaxing,
enjoyable dining experience in an attempt to differentiate its product. The image of the
product is another way firms in a monopolistically competitive market structure
differentiate their product. Firms try to create an image in the minds of their customers that
represents a positive aspect of their business or product. Chick-fil-A created an extremely
successful marketing campaign based on cows advertising “Eat Mor Chikin.” Wendy’s
“Where’s the beef?” campaign became a widely popular catchphrase in the United States in
1984. Michael Jordan and Larry Bird played a game of HORSE for a Big Mac. All of these
advertisements attempted to differentiate the product from the competition by creating an
image that implies that their product was just a little bit better than that offered by the
competition. Barriers to Entering and Exiting the Market Barriers to entering a
monopolistically competitive market structure are usually low. There may be certain
licenses that must be acquired prior to beginning operation. There may be zoning
ordinances that would prevent the pursuit of certain business activities in a specific area.
However, for some firms in a monopolistically competitive market structure, there may be
few or no barriers at all. For example, to open a McDonald’s restaurant, a person would
have to pay a franchise fee. On the other hand, a person may choose to open a mom-and-pop
diner and have to deal with zoning restrictions. Both
ECO 2301, Principles of Microeconomics 5 UNIT x STUDY GUIDE Title establishments
would also have to pass health inspections to remain in business. All of these would, while
low, still represent barriers to entry. Price-Setting Power Unlike firms operating in a
perfectly competitive market structure where the market determines the price,
monopolistically competitive firms have the ability to set their own prices (they are price
makers). The power to set prices is based on the slightly differentiated product that is sold.
For example, many restaurants feature a lunch special where food is discounted only during
the lunch hour and usually only on weekdays. These restaurants intentionally reduce the

7. price of their food for these limited times in an attempt to generate more business traffic.
Another example is menus at seafood restaurants that normally list lobster for sale at
market price. The seafood restaurant is not suggesting that the lobster meal is being
determined by a perfectly competitive market. The restaurant is informing the customer
that the price of lobster can vary from day to day. These are examples of monopolistically
competitive firms setting their own prices. Economic Profits Because monopolistically
competitive firms can enter and exit the market with very low barriers to either entering or
exiting, economic profits in the long run do not exist. Similar to a perfectly competitive
market structure, monopolistically competitive markets that exhibit economic profits in the
short run will result in more firms entering the market. Firms will continue to enter the
market until economic profits are driven to zero. If economic losses are occurring in the
short run, inefficient firms will exit the market until economic profits rise to zero. Oligopoly
As we continue to reduce the number of firms in the market, we come to the market
structure with the strangest sounding name, an oligopoly. An oligopoly market structure is
characterized by only a few sellers in the market, perhaps three or four very large firms
(McEachern, 2019). We encounter oligopolies all the time in our daily lives as these are
generally the “big business” firms. The special characteristics of an oligopoly include the
characteristics listed below. • There are relatively few firms in the market (between three
and four). • Each firm reacts to other firms’ actions in the market—oligopoly firms will even
copy the actions of other firms in the market. • Firms can sell a differentiated product or a
homogeneous product. • There are high barriers to entry. • Firms are price makers. •
Economic profits in the long run are possible. A very important point about an oligopoly
market structure is the fact that firms tend to copy the actions of other firms in the market.
This characteristic suggests that oligopoly firms do not always compete on price. Rather,
firms operating in an oligopoly tend to compete on market share. Examples of oligopoly
markets are automobile manufacturers, airlines, and oil companies. However, the classic
example of an oligopoly market structure is soft drink companies, which are discussed
below in the explanation of each remaining oligopoly market characteristic. Number of
Sellers and Buyers An oligopoly market structure is made up of a very small number of
firms. These firms are usually large, but the key is that each firm possesses a large share of
the total market. Each one of these firms is large enough to influence the market. These
influences can range from pricing to technology adoption by the industry. For example, the
soft drink industry is basically controlled by three major firms. These firms are Coca-Cola,
which controls 28.6% of the market; PepsiCo, Inc., which controls 26.8% of the market; and
Dr Pepper Snapple Group, Inc., which controls 8.6% of the market share (Sierra Services &
Supply Chain Management
ECO 2301, Principles of Microeconomics 6 UNIT x STUDY GUIDE Title at Rutgers
University, 2012). The remaining 36% of the market share is controlled by other small soft
drink manufacturing companies. The number of buyers in an oligopoly market can be vast.
Take, for instance, the soft drink industry. Coke and Pepsi products are sold around the
globe. Effectively, the entire world’s populations are potential buyers for soft drinks.
Copying the Actions of Other Firms in the Market Firms in an oligopoly tend to copy the
actions of other firms in the market in order to remain competitive. If one firm adopts new

8. technology, that firm will have a competitive edge over other firms in the market. The other
firms, therefore, will quickly copy that technology, which erases the competitive edge. Firms
will then search out other technology, and the cycle continues. For example, at one time,
touch-screen technology did not exist with cell phones. One year after Apple introduced the
iPhone with touch-screen technology in January 2007, Apple’s stock had more than doubled
(Mickalowski et al., 2008). It was not long before other cell phone makers copied the touch-
screen technology. Another example is pay-at-the-pump technology for gasoline stations.
This technology was developed by Mobil Oil Company and first introduced in the United
States in 1986 (Aldrich, 1999). Today it is difficult to find a gas station that does not have
this technology incorporated. Soft drinks are no different. Coca-Cola owns Sprite, Pepsico
owns Sierra Mist. Coca-Cola begins to sell cherry flavoring added to its original Coca-Cola
version, Pepsi adds cherry flavoring to its product. One releases a diet version of its cola, the
other releases a diet version as an answer. Type of Product Oligopoly firms can sell either a
homogeneous product or a differentiated product. For industries that sell homogeneous
products, firms are extremely sensitive to the actions of other firms in the market. For
example, barrels of oil are identical whether they are sold by Exxon Mobile, Chevron, or
Valero. Customers will immediately switch to a rival company to purchase oil if one firm
decides to raise the price even a little. Oligopoly markets can differentiate their product in
the same way that monopolistically competitive firms do. Product differentiation can be due
to physical qualities, location, services offered, or the image that has been established for
the product in the consumer’s mind. For example, let’s examine Coca-Cola and Pepsi.
Specifically, let’s concentrate on the basic cola that both sell. The cola from both firms has
similar ingredients, and the drinks are contained in packaging that is similar in terms of
size. While these two colas may be similar, Coca-Cola and Pepsi have taken tremendous
steps to differentiate their products from each other. For example, think about the shape of
the bottle of Coca-Cola. This bottle is recognizable even without any words. The font
associated with Coca-Cola is recognizable even if used for different words. Just look at the
graphic below and see if you recognize the font. (Borba, 2019)
ECO 2301, Principles of Microeconomics 7 UNIT x STUDY GUIDE Title Pepsi has created a
distinctive logo for their product. All you have to see is the red, white, and blue circle to
know you are looking at a Pepsi product. Advertisements are also used as a means of
creating an image about the product for the consumer. Many consumers will be able to
follow along if you start to sing the Coca-Cola song, which begins with I’d like to teach the
world to sing In perfect harmony (The Hillside Singers, 1971). Other consumers may fondly
remember Mean Joe Greene saying, “Hey kid, catch” and tossing a young boy his game jersey
after being given a Coke. Pepsi will also be remembered for the Pepsi Challenge, starting
the “Pepsi Generation” in 1984 with a Michael Jackson commercial, and the iconic 1992
Pepsi commercial with Cindy Crawford featuring the new look of the Pepsi can. Every
aspect of advertising and product appearance is an attempt by these oligopoly firms to
differentiate themselves from their competitors. Product differentiation helps these cola
firms capture additional market share from their competitors. Barriers to Entering and
Exiting the Market Barriers to entering into an oligopoly market are high. Economies of
scale, patents, access to technology, and strategic actions taken by firms in the market are

9. used to discourage new firms from entering the market. Do not discount the last barrier,
strategic actions taken by firms in the market, as this one barrier alone can be extremely
high. This is especially the case when firms already in the market are earning economic
profits. For example, Coca-Cola and Pepsico have created brand loyalty. This means
consumers are attached, even emotionally, to the brand and will not even consider trying
something different. Both firms have huge marketing budgets that not only try to capture
additional market share by drawing it away from competitors, but they also create a
situation where new entrants into the market will have a difficult time gaining even a small
share of the market. Richard Branson, the founder of the Virgin Group that owns Virgin
Records, Virgin Atlantic Airlines, and at least 15 other subsidiaries, learned a valuable
lesson when he attempted to create a new soft drink called Virgin Cola in 1994 (Branson,
2019). Virgin Cola outsold Coke and Pepsi in the United Kingdom for the first two years. In
1996, Branson drove a Sherman tank through Times Square in New York City firing Virgin
Cola bottles at the Coca-Cola sign. Coca-Cola began using its massive resources to squash
Virgin Cola. Soon, Virgin Cola was off the shelves and a thing of the past. Branson
commented that a firm has to be far better than the competitor and have more resources if
they are going to try to enter a market with a business giant (Branson, 2019). Price-Setting
Power Firms in an oligopoly have the ability to set their own prices. This means that they
are price makers, as opposed to price takers. However, pricing in an oligopoly is unique
because firms in this market structure (San Miguel, 2019)
ECO 2301, Principles of Microeconomics 8 UNIT x STUDY GUIDE Title copy other firms in
the market right down to pricing. If one firm raises its price, other firms in the market will
raise their prices as well. Lowering prices in an oligopoly can actually be dangerous for the
entire industry. Lowering a price only results in other firms lowering their price as well, and
attempting to compete with other firms in the market based on lowering prices can result in
a price war. When a price war occurs, firms in the market continuously lower their prices in
an effort to draw consumers away from the competition. If this continues, all firms in the
market will reach a point where economic profits are lost, and the whole industry suffers.
For this reason, firms in an oligopoly tend to price their products similarly with other firms
in the market and compete in ways other than pricing to capture market share. Examples of
oligopoly pricing can be seen all around us. Just drive down the road and look at gas prices
at two or more gasoline stations at the same intersection. Chances are, the prices are
identical or almost identical. Coca-Cola and Pepsi soft drinks are priced the same in vending
machines and at convenience stores. These firms know that that by lowering the price of
their product, they will only hurt themselves since any price reductions will be met with
price reductions from their competitors. Market share is how oligopoly firms compete, not
on price. Market share is the percent of sales a product obtains in a market (Knowledge @
Wharton School, 2011). At times, market share can also be measured by total revenues
generated by the sale of a product in a market. The next time you visit KFC, Taco Bell, or
Pizza Hut and order a discounted meal with a soft drink, look at your receipt. These firms
are subsidiaries of Pepsico, which owns Pepsi as well. The food itself will be discounted, but
the soft drink will be valued at full price. By doing this, Pepsico is driving the revenue sales
of its soft drink up by discounting the food. Economic Profits Economic profits are possible

10. in both the short run and long run for firms operating in an oligopoly market structure. The
high barriers for entering into an oligopoly market structure prevent new firms from
entering the market and capturing economic profits that may exist. Remember, economic
profits can deteriorate if a price war begins in an oligopoly market structure, and the
potential for a decline in economic profits due to a price war is why prices in an oligopoly
market structure are set at a level that is profitable for all firms. The net profit margin for
Coca-Cola was 16.60% in December 2015, 15.59% in December 2016, 3.52% in December
2017, 20.20% in December 2018, and 23.94% in December 2019 (MarketWatch, 2020a). In
those same time periods, the net profit margin for Pepsico, Inc. was 8.65% in December
2015, 10.08% in December 2016, 7.65% in December 2017, 19.35% in December 2018, and
10.89% in December 2019 (MarketWatch, 2020b). Monopoly You may intuitively
understand the other end of the spectrum of market structure if you have ever played the
board game Monopoly. In this board game, each player is attempting to be the only one left
who owns property with hotels and houses. In terms of market structure, a monopoly
represents a market with only one
ECO 2301, Principles of Microeconomics 9 UNIT x STUDY GUIDE Title firm in existence.
However, there are other characteristics of a monopoly that are important. According to
McEachern (2019), these characteristics include: • only one firm sells products in the
market; • so many buyers in the market that no one buyer has any influence over the price;
• there are extremely high barriers to entering into the market; • the products that are sold
in the market are unique (the only place to purchase the product is through the one firm
that offers it for sale); • the firm has the ability to set the price (meaning that they are price
makers); and • long-run economic profits are possible. A classic example of a monopoly are
public utilities such as water and sewer. Below is a discussion of each of the characteristics
of a monopoly as they apply to water and sewer service provided by a city where the city is
the only provider of water and sewer services. Number of Sellers and Buyers If you move
to a new city or town, it is likely that there will only be one firm that provides city water and
sewer service. This one firm may be the city itself. It generally would not even be possible
for another firm to attempt to provide these services as the cost of infrastructure alone
would be enormous. Just think about another firm having to pay for laying all the water and
sewer lines around town. Then think about having to pay for maintaining these lines,
providing the potable water that is used, and treating the waste that is produced. It is
natural that cities provide these services to their citizens. That is why city utilities are often
referred to as natural monopolies. The number of buyers in a market for the product that a
monopoly sells is very large. Dallas, Texas, had a population of 1.343 million in 2019
(United States Census Bureau, 2020). With a population this large, no one buyer can have
any influence over the market price for water or sewer services provided by the city. If one
resident of Dallas, Texas, decided to water their lawn 24 hours a day for an entire month,
the price of water in Dallas, Texas, would not change. Type of Product The type of product
provided by a monopoly is unique. In other words, it is different from any other product
that is produced by any other firm. City water is unique. Yes, you can purchase bottled
water. However, if you turn on any water tap, you will be using water provided by the city
when the city is the only provider for water that comes out of the tap. The same can be said

11. for city sewer service. No other firm provides a similar service of having drains running out
of homes, apartments, or businesses for waste water to a central collection location.
Barriers to Entering and Exiting the Market Barriers against entering into a monopoly
market structure are extreme. These barriers can be legal restrictions such as patents or
licenses. While there is no patent on providing water and sewer services to a city, there are
licenses involved with providing these services. These licenses must be obtained through
governments. For example, water districts can be created in areas where city water and
sewer services are not currently being offered. An application must be approved by the
government to provide this service. Price-Setting Power Monopolies have the ability to set
their own prices. This ability makes a monopoly, a price maker. Monopolies will set a price
high enough to ensure a profit. However, the products sold by monopolies still adhere to the
law of demand. For example, a city can have a set rate per gallon for water provided to
households and businesses. This rate is set to ensure that the cost of providing this service
is covered. If the city were to try and set the rate at $500 per gallon, households and
businesses would use dramatically lower amounts of water. If the rate was set at $0.01 per
gallon, households and businesses would use substantially more water, and the provider
would experience a loss rather than a profit because of the cost of providing the service.
ECO 2301, Principles of Microeconomics 10 UNIT x STUDY GUIDE Title Economic Profits
Long-run economic profits are possible for monopolies. However, having a monopoly does
not ensure long-run economic profits. Monopolies must set the price of their good or service
and then let consumers decide how much to purchase. Set the price too high or low, and
economic profits may not be attainable. For example, city water and sewer services have a
price that is set to ensure long-run sustainability of the services. This long-run sustainability
includes not only providing the physical water to and from households and businesses but
also the cost of maintenance and labor. If the city sets the price too high or low, these costs
may not be covered. The result would be a city that did not have the funds available to
provide services in the future. Summary of Market Structures The major characteristics
that are examined when attempting to determine whether the market structure is perfectly
competitive, monopolistically competitive, an oligopoly, or a monopoly include the number
of firms in the market, the type of product produced, the size of the firm relative to the
overall market, the market share, whether there are barriers to entering into the market,
whether firms in the market can set their own prices or not, and whether long-run
economic profits are possible. Please watch the Unit VI video Market Structure as it will
help provide additional information regarding the various market structure types. A table
has been provided below that briefly outlines the characteristics of each market structure
type. You can use this table as an initial means of hypothesizing the market structure in
which a specific firm operates. Characteristic Perfect Competition Monopolistic
Competition Oligopoly Monopoly Number of Firms Vast Many Few Dominant Firms One
Type of Product Homogeneous Differentiated Differentiated Unique, Limited, No Close
Substitute Size of Firm Relatively Small Relatively Small Average to Large Large Market
Share Small Small Average/High Absolute Barriers to Entry None Low High Extreme Price
Setting Power None, Price Taker Low, Price Maker High, Price Maker High, Price Maker
Long-Run Economic Profits None None Possible Possible Example Agriculture Restaurants

12. and Retail Trade Automobiles and Airlines Local Public Utilities As you move through your
life this week, look around you at products or services. Try to determine if the market
structure for a product is perfectly competitive, monopolistically competitive, an oligopoly,
or a monopoly. Also, when you are watching television, watch the commercials and see if
you can tell what image the firm is trying to establish in an attempt to differentiate their
product. Is the firm using humor, satire, or nostalgia? Ask yourself how you feel about the
product and the firm after watching the commercial. Every action a firm takes is an attempt
to create a feeling inside you. Try to listen to what these firms are trying to elicit.
Government Regulation Antitrust policy was developed to prevent monopolies from
forming (McEachern, 2019). However, antitrust policy goes beyond just preventing one firm
from forming in the market. Antitrust policy is also used to prevent firms from using
practices that would hamper competition. For example, the Clayton Act of 1914 prohibits
the actions of firms that require consumers who purchase one good to also purchase other
goods at the same time (McEachern, 2019). This is called a tying contract. McEachern goes
on to suggest that exclusive contracts and interlocking directorates are also illegal.
ECO 2301, Principles of Microeconomics 11 UNIT x STUDY GUIDE Title Exclusive
contracts prohibit customers from purchasing from other firms, and interlocking
directorates exist when a person serves on the board of directors of two competing firms.
The Federal Trade Commission Act of 1914 can even be used to block the merger of firms
that produce the same type of product, called horizontal mergers, or vertical mergers where
one firm supplies goods to or demands supplies from another firm (McEachern, 2019). One
well publicized use of blocking horizontal mergers was in 1986 when the Federal Trade
Commission voted unanimously to block Coca-Cola from merging with Dr Pepper and
Pepsico from merging with 7-Up (Saltzman et al., 1999). These mergers would result in the
number one soft drink company, Coca-Cola, purchasing the number four soft drink
company, Dr Pepper, and the number two soft drink company, Pepsico, purchasing the
number three soft drink company, 7-Up. Thus, antitrust policy can be used not only in
situations to prevent a monopoly from forming but also to prevent a degree of market
power that could distort competition. Antitrust policy can be used to prevent monopolies
from forming as well as prevent mergers that would result in distorted competition in an
industry with more than one firm. When examining mergers or the actions of firms to
create a monopoly, government antitrust officials are focused on whether the merger or
actions will negatively impact competition. If the answer is yes, the government will step in
and attempt to enforce antitrust policy. If the answer is no, the government will leave the
industry alone. Most of the time, the government chooses to stay out of enforcing antitrust
policy, as only about 2% of all mergers proposed have been challenged (McEachern, 2019).
Large firms that might run the risk of violating antitrust policy know this policy and just the
threat of being charged with a violation appears to be enough to keep these firms from even
getting close to stepping over the line that has been drawn concerning antitrust laws.
Natural Monopolies As mentioned before, there are some monopolies that the federal
government allows to form. These monopolies are referred to as natural monopolies. A
natural monopoly is allowed when it is cheaper for one firm to provide goods or services to
the market than for two or more firms to exist in the market (McEachern, 2019). Utility

13. companies that provide water, sewer services, and natural gas to homes and businesses are
an example of natural monopolies that governments have allowed to form. The startup
costs associated with building the infrastructure necessary to make water safe for human
consumption as well as the pipelines required to distribute this water to and from every
home and business in the area produces a situation where it is cost-effective to allow just
one firm to monopolize the market. Just because natural monopolies are allowed, this does
not mean that they are exempt from regulation. In fact, natural monopolies are heavily
regulated to ensure consumers that pricing is fair and services are provided. Governments
can either operate a natural monopoly themselves or regulate a privately owned monopoly.
The first alternative, governments operating a natural monopoly, ensures that goods and
services are provided to consumers at a fair price. When private firms are allowed to
operate as natural monopolies, though, careful regulation is required. Regulating Private
Firms Operating as Natural Monopolies Unregulated monopolies will want to produce at a
level where marginal revenue equals marginal cost. However, producing at this level is
inefficient because price will be greater than marginal cost (McEachern, 2019). That is why
regulations for natural monopolies tend to focus on price. If regulated, a natural monopoly
will be forced to produce at a level where marginal cost is equal to demand. The problem
with a natural monopoly producing at this level is that they would be operating at a loss and
would go out of business (McEachern, 2019). The problem for regulators is that a natural
monopoly is formed because it is more efficient for one firm to provide the good or service
to consumers than multiple firms. If left unregulated, the quantity of goods
ECO 2301, Principles of Microeconomics 12 UNIT x STUDY GUIDE Title provided to the
market would be lower than normal, and excess profits would be made by the firm. If
regulated, the firm would be forced to charge a lower price but would lose money and go
out of business. To encourage the monopolist to continue operations and produce at a level
where price equals marginal costs, governments can provide subsidies to the firm so it can
earn a normal profit (McEachern, 2019). Another way governments can ensure that a
natural monopoly stays in business is to set price equal to average costs for the firm
(McEachern, 2019). Doing so ensures a normal profit for the firm. Regulatory Dilemma
Setting price equal to marginal cost results in an allocation of resources that is optimal for
society, but the monopolist will incur losses if the government does not provide subsidies
(McEachern, 2019). Setting price equal to average cost results in a normal profit for the
monopolist, but output is restricted. The dilemma for the regulator is having to decide
whether providing a subsidy to the monopolist or restricting output is the best alternative.
If a monopoly is unregulated, consumers would face much higher prices and much lower
quantities of the goods or services. Both types of regulations reduce price and increase the
availability of the goods or services. However, deciding which approach to take can be
extremely difficult as demand and cost curves are only estimates, and the monopoly may
not provide enough or even correct information to help the government set the regulations
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