1. Unit 3 Review Questions

2. Unit 3 Review Questions a. They will raise money through the sale.
Granite Delights has decided to sell stock in their company, what negative is associated with this move?
a. They will raise money through the sale.
b. Their debts will increase through the sale.
c. They will become a partnership after the sale.
d. They will lose a portion of ownership equal to the
shares sold.
2. Sherry has decided to going the perfectly competitive industry of cotton production. Which of the following will she face?
a. She will have no control over the price of her cotton.
b. She will have total control over the price of her cotton
c. She will need to advertise a lot to sell her cotton.
d. She will collaborate with others to set the price of
her cotton.

3. Unit 3 Review Questions a. They will raise money through the sale.
Granite Delights has decided to sell stock in their company, what negative is associated with this move?
a. They will raise money through the sale.
b. Their debts will increase through the sale.
c. They will become a partnership after the sale.
d. They will lose a portion of ownership equal to the
shares sold.
2. Sherry has decided to going the perfectly competitive industry of cotton production. Which of the following will she face?
a. She will have no control over the price of her cotton.
b. She will have total control over the price of her cotton
c. She will need to advertise a lot to sell her cotton.
d. She will collaborate with others to set the price of
her cotton.

4. Imperfectly Competitive markets

5. Oligopoly

6. Characteristics of Oligopolies:
FOUR MARKET MODELS
Perfect
Competition
Monopolistic
Competition
Pure
Monopoly
Oligopoly
Characteristics of Oligopolies:
A Few Large Producers (Less than 10)
Identical or Differentiated Products
High Barriers to Entry
Control Over Price (Price Maker)
Firms use Strategic Pricing

7. Oligopolies FEW LARGE SELLERS
A market is considered an oligopoly when 3 or 4 sellers produce 70 percent or more of the goods or services in a market.
What businesses make your breakfast cereal?

8. Oligopolies IDENTICAL OR SIMILAR PRODUCTS
Each seller has such a large share of the market they rarely create drastically different items for fear of losing their share of the market

9. HOW DO OLIGOPOLIES OCCUR?
High barriers to entry keep others from entering.
Types of Barriers to Entry
1. Economies of Scale
Ex: The process on making cereal (like everything else) is complicated and expensive. It can be made less expensive by making things in bulk.
2. High Start-up Costs
3. Ownership of Raw Materials

10. Oligopolies at work
Companies try to differentiate themselves from competitors.
They provide ‘unique’ features that their competitors do not.
They maintain control of their prices but always have an eye on those of their competitors.

11. Oligopolies at work Collusion
Occurs when sellers within an industry secretly agree to set production levels or prices at a certain level.
This generally results in higher prices and greater profits for sellers.
Collusion is a crime in the United States and can result in fines and prison time.

12. Oligopolies at work Cartels
Open arrangements between competitors to set prices or production levels.
Like collusions, cartels are illegal in the U.S.A. They are legal in other nations.
Example:
Oil Cartels
De Beers Diamonds

13. Monopoly 13

14. 5 Characteristics of a Monopoly
One Firm (Single Seller)
One Firm controls the vast majority of a market
The Firm IS the Industry
2. Unique good with no close substitutes
3. “Price Maker”
The firm can manipulate the price by changing the quantity supplied.
Ex: Georgia electric companies 14

15. 5 Characteristics of a Monopoly
4. High Barriers to Entry
New firms CANNOT enter market
No immediate competitors
Firm can make profit in the long-run
5. Some “Nonprice” Competition
Despite having no close competitors, monopolies still advertise their products in an effort to increase demand. 15

16. 16

17. Types of monopolies
Geographic Monopolies –Some markets are so isolated that only one seller enters that market.
Nowhere gas stations,
Small town supermarket
Atlanta Falcons…
-Location or control of resources limits competition and leads to one supplier.

18. Types of monopolies
Technological Monopolies –A monopoly that occurs when a single firm controls manufacturing methods necessary to produce a certain product, or has exclusive rights over the technology used to manufacture it.

19. Types of monopolies Government Monopolies –
-Government allows monopoly for public benefits or to stimulate innovation.
-The government issues patents to protect inventors and forbids others from using their invention. (They last 20 years)
Ex: Water Company, Firefighters, The Army, Pharmaceutical drugs, rubix cubes…

20. Types of monopolies
Natural Monopoly- It is NATURAL for only one firm to produce because they can produce at the lowest cost. Ex: Electric Companies (GA Power) If there were three competing electric companies they would have higher costs. Having only one electric company keeps prices low

21. Monopolies at work Monopoly prices are limited in three ways:
1-Consumer Demand –At some point a seller may drive consumers away from their product.
2-Potential Competition –A seller’s profits may become so great that others will be encouraged to enter the market
3- Government Regulation –Many monopolies are governed and regulated by the government