C opyright  2007 by Oxford University Press, Inc. PowerPoint Slides Prepared by Robert F. Brooker, Ph.D.Slide 1 1

C opyright  2007 by Oxford University Press, Inc. PowerPoint Slides Prepared by Robert F. Brooker, Ph.D.Slide 2 2

C opyright  2007 by Oxford University Press, Inc. PowerPoint Slides Prepared by Robert F. Brooker, Ph.D.Slide 3 Market Structure Perfect Competition Monopolistic Competition Oligopoly Monopoly More Competitive Less Competitive

C opyright  2007 by Oxford University Press, Inc. PowerPoint Slides Prepared by Robert F. Brooker, Ph.D.Slide 4 Perfect Competition Many buyers and sellers Buyers and sellers are price takers Product is homogeneous Perfect mobility of resources Economic agents have perfect knowledge Example: Stock Market

C opyright  2007 by Oxford University Press, Inc. PowerPoint Slides Prepared by Robert F. Brooker, Ph.D.Slide 5 Monopolistic Competition Many sellers and buyers Differentiated product Perfect mobility of resources Example: Fast-food outlets

C opyright  2007 by Oxford University Press, Inc. PowerPoint Slides Prepared by Robert F. Brooker, Ph.D.Slide 6 Oligopoly Few sellers and many buyers Product may be homogeneous or differentiated Barriers to resource mobility Example: Automobile manufacturers

C opyright  2007 by Oxford University Press, Inc. PowerPoint Slides Prepared by Robert F. Brooker, Ph.D.Slide 7 Monopoly Single seller and many buyers No close substitutes for product Significant barriers to resource mobility –Control of an essential input –Patents or copyrights –Economies of scale: Natural monopoly –Government franchise: Post office

C opyright  2007 by Oxford University Press, Inc. PowerPoint Slides Prepared by Robert F. Brooker, Ph.D.Slide 8

C opyright  2007 by Oxford University Press, Inc. PowerPoint Slides Prepared by Robert F. Brooker, Ph.D.Slide 9 Perfect Competition: Price Determination

C opyright  2007 by Oxford University Press, Inc. PowerPoint Slides Prepared by Robert F. Brooker, Ph.D.Slide 10 Perfect Competition: Short-Run Equilibrium Firm’s Demand Curve = Market Price = Marginal Revenue Firm’s Supply Curve = Marginal Cost where Marginal Cost > Average Variable Cost

C opyright  2007 by Oxford University Press, Inc. PowerPoint Slides Prepared by Robert F. Brooker, Ph.D.Slide 11

C opyright  2007 by Oxford University Press, Inc. PowerPoint Slides Prepared by Robert F. Brooker, Ph.D.Slide 12 Perfect Competition: Long-Run Equilibrium Price = Marginal Cost = Average Total Cost Quantity is set by the firm so that short-run: At the same quantity, long-run: Price = Marginal Cost = Average Cost Economic Profit = 0

C opyright  2007 by Oxford University Press, Inc. PowerPoint Slides Prepared by Robert F. Brooker, Ph.D.Slide 13

C opyright  2007 by Oxford University Press, Inc. PowerPoint Slides Prepared by Robert F. Brooker, Ph.D.Slide 14 Competition in the Global Economy Foreign Exchange Rate –Price of a foreign currency in terms of the domestic currency Depreciation of the Domestic Currency –Increase in the price of a foreign currency relative to the domestic currency Appreciation of the Domestic Currency –Decrease in the price of a foreign currency relative to the domestic currency

C opyright  2007 by Oxford University Press, Inc. PowerPoint Slides Prepared by Robert F. Brooker, Ph.D.Slide 15

C opyright  2007 by Oxford University Press, Inc. PowerPoint Slides Prepared by Robert F. Brooker, Ph.D.Slide 16

C opyright  2007 by Oxford University Press, Inc. PowerPoint Slides Prepared by Robert F. Brooker, Ph.D.Slide 17

C opyright  2007 by Oxford University Press, Inc. PowerPoint Slides Prepared by Robert F. Brooker, Ph.D.Slide 18 Monopoly Single seller that produces a product with no close substitutes Sources of Monopoly –Control of an essential input to a product –Patents or copyrights –Economies of scale: Natural monopoly –Government franchise: Post office

C opyright  2007 by Oxford University Press, Inc. PowerPoint Slides Prepared by Robert F. Brooker, Ph.D.Slide 19 Monopoly Short-Run Equilibrium Demand curve for the firm is the market demand curve Firm produces a quantity (Q*) where marginal revenue (MR) is equal to marginal cost (MR) Exception: Q* = 0 if average variable cost (AVC) is above the demand curve at all levels of output

C opyright  2007 by Oxford University Press, Inc. PowerPoint Slides Prepared by Robert F. Brooker, Ph.D.Slide 20

C opyright  2007 by Oxford University Press, Inc. PowerPoint Slides Prepared by Robert F. Brooker, Ph.D.Slide 21

C opyright  2007 by Oxford University Press, Inc. PowerPoint Slides Prepared by Robert F. Brooker, Ph.D.Slide 22

C opyright  2007 by Oxford University Press, Inc. PowerPoint Slides Prepared by Robert F. Brooker, Ph.D.Slide 23 Monopolistic Competition Many sellers of differentiated (similar but not identical) products Limited monopoly power Downward-sloping demand curve Increase in market share by competitors causes decrease in demand for the firm’s product

C opyright  2007 by Oxford University Press, Inc. PowerPoint Slides Prepared by Robert F. Brooker, Ph.D.Slide 24

C opyright  2007 by Oxford University Press, Inc. PowerPoint Slides Prepared by Robert F. Brooker, Ph.D.Slide 25

C opyright  2007 by Oxford University Press, Inc. PowerPoint Slides Prepared by Robert F. Brooker, Ph.D.Slide 26

C opyright  2007 by Oxford University Press, Inc. PowerPoint Slides Prepared by Robert F. Brooker, Ph.D.Slide 27

C opyright  2007 by Oxford University Press, Inc. PowerPoint Slides Prepared by Robert F. Brooker, Ph.D.Slide 28