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Chapter 8 Market Structure: Perfect Competition, Monopoly , Oligopoly and Monopolistic Competition PowerPoint Slides by Robert F. Brooker Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc.
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Monopolistic Competition
Market Structure More Competitive Less Competitive Perfect Competition Monopolistic Competition Oligopoly Monopoly PowerPoint Slides by Robert F. Brooker Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc.
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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 PowerPoint Slides by Robert F. Brooker Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc.
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Monopolistic Competition
Many sellers and buyers Differentiated product Perfect mobility of resources Example: Fast-food outlets PowerPoint Slides by Robert F. Brooker Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc.
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Oligopoly Few sellers and many buyers
Product may be homogeneous or differentiated Barriers to resource mobility Example: Automobile manufacturers PowerPoint Slides by Robert F. Brooker Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc.
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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 PowerPoint Slides by Robert F. Brooker Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc.
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Perfect Competition: Price Determination
PowerPoint Slides by Robert F. Brooker Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc.
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Perfect Competition: Price Determination
PowerPoint Slides by Robert F. Brooker Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc.
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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 PowerPoint Slides by Robert F. Brooker Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc.
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Perfect Competition: Short-Run Equilibrium
PowerPoint Slides by Robert F. Brooker Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc.
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Perfect Competition: Long-Run Equilibrium
Quantity is set by the firm so that short-run: Price = Marginal Cost = Average Total Cost At the same quantity, long-run: Price = Marginal Cost = Average Cost Economic Profit = 0 PowerPoint Slides by Robert F. Brooker Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc.
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Perfect Competition: Long-Run Equilibrium
PowerPoint Slides by Robert F. Brooker Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc.
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PowerPoint Slides by Robert F. Brooker. Harcourt, Inc
PowerPoint Slides by Robert F. Brooker Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc.
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PowerPoint Slides by Robert F. Brooker. Harcourt, Inc
PowerPoint Slides by Robert F. Brooker Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc.
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PowerPoint Slides by Robert F. Brooker. Harcourt, Inc
PowerPoint Slides by Robert F. Brooker Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc.
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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 PowerPoint Slides by Robert F. Brooker Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc.
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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 (MC) Exception: Q* = 0 if average variable cost (AVC) is above the demand curve at all levels of output PowerPoint Slides by Robert F. Brooker Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc.
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Monopoly Short-Run Equilibrium
PowerPoint Slides by Robert F. Brooker Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc.
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Monopoly Long-Run Equilibrium
PowerPoint Slides by Robert F. Brooker Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc.
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PowerPoint Slides by Robert F. Brooker. Harcourt, Inc
PowerPoint Slides by Robert F. Brooker Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc.
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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 PowerPoint Slides by Robert F. Brooker Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc.
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Monopolistic Competition Short-Run Equilibrium
PowerPoint Slides by Robert F. Brooker Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc.
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Monopolistic Competition Long-Run Equilibrium
Profit = 0 PowerPoint Slides by Robert F. Brooker Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc.
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Monopolistic Competition Long-Run Equilibrium
Cost with selling expenses Cost without selling expenses PowerPoint Slides by Robert F. Brooker Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc.
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