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Micro Class Notes Ch14-17 Mkt Str Intro

Micro Class Notes Ch14-17 Mkt Str Intro

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Published by Katherine Sauer

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Published by: Katherine Sauer on Jan 09, 2012
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Market Structures: Introduction (from ch 14, 15, 16)A firm¶s production decisions depend onRule:if P < AVC then temporarily _____________________ if P > AVC then produce the quantity where _____________________ Comparing price and average total cost determines a firm¶s _____________________.if P < ATC the firm earns a lossif P = ATC the firm breaks evenif P > ATC the firm earns a profitThe price that a firm can charge depends on- what kind of product it produces- how much competition it facesI. There are 4 basic types of markets:1. Competitive2. Monopoly3. Monopolistic Competition4. OligopolyWe will characterize each type of market according to the following factors:- number of firms- type of product- barriers to entry1. Competitive Market Characteristics (aka perfect competition)- __________firms (none of them dominate the market)- products are roughly the ____________ (aka homogeneous)- ________________ barriers to entry (new firms can easily enter this market)Ex: rice farmers in east Asia- many, many rice farmers- one farmer¶s rice isn¶t distinguishable from another farmer¶s rice- no significant barriers to starting a rice-growing business2. Monopoly Market Characteristics- ___________________ - unique product (could be geographically unique or something without close substitutes)- __________________barriers to entry (other firms are prevented from entering this market)
The fundamental cause of a monopoly is ________________________________.a. __________________________ or control of a key resource that is used in the production of the goode.g. DeBeers diamonds b. _____________________ = government grants an exclusive right to sell some good or servicee.g. Lipitor (exp 11/2011)c. ____________________________ = due to economies of scale, a single firm can supply a good or service to an entire market at a smaller cost than could two or more firmse.g. one water company per city3. Monopolistic Competition Characteristics- _________________ firms- ________________________ product (advertising is important)- __________________ barriers to entryThis is an industry where there is substantial competition for the good itself, but firms differentiate their  product by branding.Ex: blue jeans- no real barriers to entry to produce- hundreds of firms produce blue jeans- the GAP has a monopoly on GAP brand jeans- Levis has a monopoly on Levis brand jeans³competition on the item, monopoly on the brand´4. Oligopoly Market Characteristics- _____________ firms (more than 1, less than many)- identical or differentiated products- _________________ barriers to entryEx: automobile makers for the US: GM, Ford, Toyota, Volkswagon, Hyundai, Nissan, Honda, Chrysler - sell similar but differentiated productsToyota Corolla vs Nissan SentraChevy Blazer vs GMC Jimmy- high barriers to entry(the start up capital would be huge« factories, engineers, supply chain«)Ex: Oil Industry- Dominated by a few firms: ExxonMobil, Royal Dutch Shell, BP, Chevron and ConocoPhillips- Sell a homogeneous product.- High barriers to entry: start up capital, mineral rights
 Ranking the types of markets from most competitive to least competitive:II. Competition and PricesWhen it comes to setting price:A firm in a
competitive market
must simply accept the market price as given.- many, many other firms- selling the same product- new firms can enter at willA firm in this type of market is a ³________________________´.A
monopolistic competitor
can determine what price to charge for their good, but they keep in mind:- face competition from similar products- consumers¶ willingness to payEx: Dove can set the price for its body wash « but it can¶t control the price for body wash ingeneral.In an
oligopoly market
, the ability to set price depends on the type of good being sold.ex: oil has one priceex: car makers can set prices for different modelsBecause there are only a few firms in an oligopoly market, strategy is incredibly important.A
can determine what price to charge for its good because it faces no competition.³price maker´ ³price setter´A monopolist, however, can¶t set the price infinitely high.- can only set it as high as demand will allowThe level of competition would suggest to us that the type of market structure would impact ________________________________________________.a. A firm in a competitive market will have more elastic demand than a monopoly market.
D, competitive
D, monopoly
 - many close substitutes in competitive market- no substitutes in monopoly market

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