Perfect Competition vs. Monopoly To contrast perfect competition and monopolies

Perfect Competition Market in which numerous buyers and sellers are seeking to trade a similar product

Perfect Competition Market in which numerous buyers and sellers are seeking to trade a similar product In this case, the seller does not have complete control over the price

Perfect Competition Market in which numerous buyers and sellers are seeking to trade a similar product In this case, the seller does not have complete control over the price If a market is in perfect comp., then the producer must meet the price of other sellers

Perfect Competition Market in which numerous buyers and sellers are seeking to trade a similar product In this case, the seller does not have complete control over the price If a market is in perfect comp., then the producer must meet the price of other sellers The only way to increase profits is to lower the cost of production while still charging the same price (or increase the number of products sold)

Perfect Competition In order to be successful in a pc market, companies have to practice diversification

Perfect Competition In order to be successful in a pc market, companies have to practice diversification Diversification – increasing the types of products to lower fixed costs

Perfect Competition In order to be successful in a pc market, companies have to practice diversification Diversification – increasing the types of products to lower fixed costs May also be done to take advantage of other parts of the market that are not as competitive

Perfect Competition The Invisible Hand at work:

Perfect Competition The Invisible Hand at work: IF there are too many firms in a competitive market, profits will be low

Perfect Competition The Invisible Hand at work: IF there are too many firms in a competitive market, profits will be low Some firms would close

Perfect Competition The Invisible Hand at work: IF there are too many firms in a competitive market, profits will be low Some firms would close The fewer the firms in a competitive market, the more profit that can be made

Perfect Competition The Invisible Hand at work: IF there are too many firms in a competitive market, profits will be low Some firms would close The fewer the firms in a competitive market, the more profit that can be made The fewer the firms, the higher the price

Perfect Competition The Invisible Hand at work: IF there are too many firms in a competitive market, profits will be low Some firms would close The fewer the firms in a competitive market, the more profit that can be made The fewer the firms, the higher the price Generally in a competitive market, the consumer benefits

Perfect Competition The Invisible Hand at work: IF there are too many firms in a competitive market, profits will be low Some firms would close The fewer the firms in a competitive market, the more profit that can be made The fewer the firms, the higher the price Generally in a competitive market, the consumer benefits However, the cut prices, firms reduce services and quality (ex. Razor scooter)

Perfect Competition The Invisible Hand at work: There can be too many firms in a competitive market

Perfect Competition The Invisible Hand at work: There can be too many firms in a competitive market With little chance for profit, there may not be any $ for research and development of new better products

Perfect Competition The Invisible Hand at work: There can be too many firms in a competitive market With little chance for profit, there may not be any $ for research and development of new better products Highly competitive/low profit firms may not survive a down turn in the economy

Monopolies ® Perfect monopoly – a firm is the only supplier of a product

Monopolies ® Perfect monopoly – a firm is the only supplier of a product In a monopoly, a seller can charge as high of a price as they want

Monopolies ® Several factors to take into consideration:

Monopolies ® Several factors to take into consideration: The higher the price, the fewer number of people who could afford to purchase it

Monopolies ® Several factors to take into consideration: The higher the price, the fewer number of people who could afford to purchase it If prices are too high, it may encourage a competitor to enter the market

Monopolies ® Imperfect competition – have most of the control, but not all of the control in a market

Monopolies ® Three Types of imperfect markets:

Monopolies ® Three Types of imperfect markets: Monopolistic competition occurs when there are many producers of a similar product, all claiming that their product is best Ex. Shampoos, soaps, etc. (people will usually go with the well known name = Kleenex)

Monopolies ® Three Types of imperfect markets: Oligopoly occurs when there are very few producers of a product, allowing one to take charge

Monopolies ® Three Types of imperfect markets: Oligopoly occurs when there are very few producers of a product, allowing one to take charge Ex. The auto industry

Monopolies ® Three Types of imperfect markets: Natural Monopoly occurs when the product is very expensive to produce

Monopolies ® Three Types of imperfect markets: Natural Monopoly occurs when the product is very expensive to produce Ex. utilities