The document discusses different market structures including perfect competition, monopoly, monopolistic competition, and oligopoly. It provides details on key characteristics of each market structure such as the number of buyers and sellers, level of product differentiation, barriers to entry, and availability of information. Graphs and diagrams are used to illustrate concepts like competitive firm profit maximization by producing at the quantity where marginal revenue equals marginal cost. The impacts of supply and demand shifts on market equilibrium price and quantity are also examined.
2. The function of Price
Price brings quantity supplied in
line with quantity demanded.
As a good becomes relatively more
scarce, price will go up.
How does this impact firms and
consumers?
3. Markets can be characterized
by how prices for goods and
services are determined
12. Number and Size Distribution
E.g. farmers and consumers
2 million farms in US
1.2 million are small with < $20,000
annual income
13. Number and Size Distribution
Most farm’s output is so small,
any one’s output, compared to
total output, is imperceptible.
What one farmer does has no
influence on what any other
farmer does.
14. Number and Size Distribution
The same can be said for
consumers.
Marketplace has many consumers
and the vast majority consume small
amounts.
26. Knowledge and Info
In a perfectly competitive market,
firms would have same access to
new knowledge and information
about market prices, quantities, and
quality.
36. Average Total Cost (ATC) can be
added to the graph to demonstrate
the firm’s profit potential.
37. Average Total Cost
The per unit cost of producing a
specific good.
The difference between ATC and
product’s price equals the profit
per unit of product.
47. Profit
Price - ATC = Profit per unit of
output
Note: Price < ATC indicates a
loss
48. Profit
It is important to note that profit in a
perfectly competitive market will lead
to firms wanting to enter that market
If enough firms enter, then the
market supply curve will shift to the
right.
49. $ or Price$ or Price
SS
DD
QuantityQuantity
PPee
QQee
50. $ or Price$ or Price
SS
DD
QuantityQuantity
PPee
QQee
SS
51. Profit
With the increase in Supply, price
will be driven down.
With the lower price, profits will be
driven out.
120. Concentration Ratio
A rough measure to gauge
whether or not an industry is an
oligopoly
% of market the largest firms
control
Usually 4-8 firms
121. CR Example
CR4 = % of market the largest 4
firms control
Malt beverage industry
CR4 = 90%
122. Pure Monopoly
Only one seller in market
Product totally differentiated
No free entry or exit
Imperfect information
123. Pure Monopoly
Where a perfectly competitive
firm is a price taker, the
monopolist is a price searcher.
136. The Growth of Firms
Internal Growth
External Growth
137. The Growth of Firms
Horizontal Mergers
Combinations of firms in the same
industry
Vertical Mergers
Two or more firms in different production
or marketing stages within the same
industry.
Conglomerate mergers
Combinations of firms in unlike
industries
138. Antitrust Laws
Sherman Antitrust Act
Section 1 makes it Illegal to act in
restraint of trade
Section 2 makes it illegal to
monopolize interstate trade,
forbidding the use of economic
power.
139. Agricultural Bargaining
The more the market is
concentrated, the more power the
larger firms have.
A large number of farmers facing a
single buyer could be an example.
Farmers can resolve this situation
by organizing themselves into an
agricultural bargaining group.
140. Agricultural Bargaining
Clayton Act started the process of
giving farm groups immunity from
Sherman Act.
These farm groups must form as
non-profit groups, and could not
have capital stock.
141. Agricultural Bargaining
Capper Volstead Act of 1922 was sought to clarify
that section of the Clayton act that applied to
agriculture.
CV 1922 provided stock or nonstock corporations to
operate provided:
They operated for the mutual benefit of their
membership
They did not deal in the products of non-members to
an amount greater in value than such as are handled
by it for its members.
No member is allowed more than one vote
Association does not pay dividends on stock or
membership capital in excess of 8 percent a year.
They can’t use their market power to enhance prices.