Competitive vs. Market Power Industries

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Presentation transcript:

Competitive vs. Market Power Industries Factor Market Wrap-up Chapter 18 - Part 3

All market structures are Wage-Takers at current wage rate Product Market 1 Company Factor Market General Electric Low Skilled Workers General Electric Refrigerators Price P2 D2 Q2 -------------------- ----------------- Wages D1 S MRP1 ---------- Q1 E1 MRP2 ---------- Q2 E2 E2 $700 -------------- E1 MFC1 $25,000 ------------- Q1 Qty Qty Derived Demand = ?

FACTOR MARKET Wage-Takers Entire Factor Market 1 Company Factor Market General Electric Recent College Graduates Wages W2 D2 Q2 -------------------- ----------------- Wages D1 S MRP1 ---------- Q1 E1 MFC2 W2 ---------------- E2 E2 $45,000 -------------- E1 MFC1 $45,000 ------------- Q2 Q1 Qty Qty

All of Microeconomics in one slide: You consume another unit Firms produce another unit MB ≥ MC MR ≥ MC Firms purchase another input when: MRP ≥ MFC Marginal Revenue Product = Marginal Factor Cost

Practice Multiple Choice

Market Power Industries Competitive Industry 3 Market Power Industries Perfect Competition Monopolistic Competition Oligopoly Monopoly Highest Output All 3 have downward sloping demand curves Lowest Output

Market power industries are competitive in the FACTOR MARKET Market Power Industries produce LESS output than Competitive Industries Therefore they need LESS INPUTS! 2 T-Shirt Industries: Competitive Monopoly Set P = MC Set MR = MC Lowest price Highest price Highest Qty Lowest Qty Hire more inputs Hire less inputs Workers, machines, Cotton, etc… T-Shirt Industry

Competitive vs. Market Power Firm P = MR for a competitive firm P > MR for a firm with market power Wage rate MRPC MRPM MFC = wage rate Therefore MRP curves will be different for each type of firm/industry MRPC = MPinput * Price output (use demand curve above) MRPM = MPinput * MRoutput (use MR curve above) W1 --------------- QM QC Qty

Competitive vs. Market Power Competitive Industry Set MRPL = MFCL (wage rate) They are wage takers Market Power Industry Entire Industry Factor Market Bottom Line: Market power Industries hire less workers pay same wage! (Monopoly, Oligopoly, Monopolistic Competition

Worksheet #3: Competitive vs. Market Power Firms

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