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

2. 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 = ?

3. 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

4. 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

5. Practice Multiple Choice

6. 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

7. 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

8. 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

9. 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

10. Worksheet #3: Competitive vs. Market Power Firms