Perfect Competition Ap Micro 10/10

Warm Up Candy Simulation– Try to be the firm that makes the most revenue (but note, I will only be buying one candy from each group)!!!

Four Market Models Perfect (pure) competition Monopoly Monopolistc competition Oligopoly

Perfect Competition Very large number of firms Firms produce a standardized products (all the same thing, ex. Wheat, tomatoes) New firms can enter or exit the industry very easily Not one producer has a large market share

Monopoly One firm is the sole seller of a good or service Entry of additional firms is blocked One firm = entire industry Illegal in the U.S.

Monopolistic Competition Relatively large number of sellers Firms produce differentiated products Non price competition – firms attempt to distinguish its product from competitors on the basis of attributes like design and quality Entry and exit is easy

Oligopoly Few sellers of a standardized or differentiated product Each firm is affected by the decisions of its rivals and must take those decisions into account in determining price and output

Discuss Are the following examples of perfectly competitive markets? There are 2 producers of aluminum in the world, a good sold in many places. The price of natural gas is determined by global supply and demand. A small share of that global supply is produced by a handful of companies located in the North Sea. Dozens of designers sell high-fashion clothes. Each designer has a distinctive style and a loyal clientele. There are many baseball teams in the US, one or two in each major city, and each selling tickets to its home-town events. No Yes No No

Perfect Competition—Price Takers Individual firms do not exert control over the product price Every firm sells a small fraction of total (identical) output Changing individual firm output will not influence the market At the mercy of the market Cannot change market price, only adjust to it

Demand Demand schedule faced by an individual firm in a purely competitive industry is perfectly elastic at the market price

Average, Total, and Marginal Revenue The demand schedule is also its average revenue schedule. Total revenue = Price (or average revenue) * Quantity Marginal revenue – the change in total revenue resulting from selling one additional unit of output In pure competition, marginal revenue = price = average revenue