Title Layout SUBTITLE And it’s Friday…

SSEMI4 The student will explain the organization and role of business and analyze the four types of market structures in the U.S. economy. a. Compare and contrast three forms of business organization—sole proprietorship, partnership, and corporation. b. Explain the role of profit as an incentive for entrepreneurs. c. Identify the basic characteristics of monopoly, oligopoly, monopolistic competition, and pure competition.

MARKET STRUCTURE # 1: PERFECT/PURE COMPETITION

Barriers to Entry  Make it difficult for new firms to enter the market  Barriers can RESTRICT competition  2 Common Barriers include:  1. Start-up costs  2. Technology

Pure/Perfect Competition  A perfectly competitive market  Large # of firms that produce the same product  Must meet 4 conditions  1. Many buyers & sellers  2. Sellers offer identical products  3. Buyers & sellers are well informed  4. Sellers are able to enter & exit the market

Perfect/ Pure Competition Ex. Agriculture  Tomatoes  Lots of buyers and sellers  Tomatoes are identical  Buyers and sellers are informed about product  Anybody can sell produce or quit selling produce

2. Sellers offer identical products  Commodity-  Commodity- product that is the same regardless of who makes or sells it (low- grade gas, notebook paper, & milk)  This is key to perfect competition for 1 reason: buyer will not pay extra for one particular company’s goods. Instead, buyer will choose the product with the lowest price. =

Price & Output competition  The role of competition in a perfect market keeps prices & production costs low  Prices in a perfectly competitive market are the lowest sustainable prices possible

Why is it a Monopoly?  Monopolies form when barriers prevent firms from entering a market that has a single supplier  Basically, barriers to entry are why monopolies exist  Monopolies have one trait in common: a single seller in a market

Types of Monopolies Government Monopolies – a monopoly created by the government

Types of Monopolies  Technological monopolies:  government issues a patent, which gives a company exclusive rights to sell a good or service  Government does this to encourage research to benefit society  Franchise  Franchise – gives a single firm the right to sell its goods within an exclusive market (government parks)  License  License – grants firms the right to operate a business

 Industrial Monopolies Major League Baseball National Football League

Monopolistic Competition  Companies compete in a market to sell products that are similar but not identical  Goods can be substituted for one another but are not the same  Ex:JEANS

4 Conditions of Monopolistic Competition 1. Many firms: new firms can enter market 2. Few artificial barriers to entry 3. Slight control over price: have some freedom to raise or lower prices We pay more for Coca-Cola than store brand cola 4. Differentiated products: enables sellers to profit from the differences b/t his or her products

Oligopoly  Describes a market dominated by a few large, profitable firms  The 4 largest firms produce at least 70 to 80 percent of the output  Air travel, breakfast cereals, & household appliances

Oligopoly  Forms when significant barriers to entry keep new companies from entering the market  Problems: oligopolies seem to work together to form a monopoly  Collusions- agreement to set prices & production levels  Cartels- agreement to coordinate prices & production