Topic #1: Perfectly Competitive Market Structure
A perfectly competitive market structure has key features.
1. There are many buyers and sellers so neither side of the market has market power.
2. The product provided to the market is identical across suppliers.
3. There are no barriers to entry.
Give an example and describe an industry that would meet the conditions of a perfectly competitive market structure.
- How do individual firms in a perfectly competitive industry respond to an increase in the market demand for the product?
B. How is price determined in this market structure?
C. Would advertising by an individual firm in this type of market provide any benefits?
Topic 2: Monopoly Market Structure
A monopoly is a firm that is the only seller of a good or service that does not have a close substitute. In order to maximize profits, monopolies produce where: Marginal Revenue = Marginal Cost < Market Price.
- How does this compare to the profit maximization condition for perfectly competitive markets?
B. How do these differences contribute to deadweight loss in a monopoly market?
C. Can you think of reasons why a monopoly might decide on their own to increase production and lower prices to earn an acceptable profit rather than maximize profits?