Pure Competition177-178

Mr. HenryAP Economics

Four Types of Markets

• There are four types of market structures, each differing in several aspects:

- Number of firms in the industry- Whether those firms produce a standardized

product or try to differentiate their products from those of other firms

- How easy or difficult it is for firms to enter the industry

Characteristics of the Four Basic Market Models

• After looking at the characteristics of a pure monopoly, what examples can you think of for a pure monopoly?

• After looking at the characteristics of an oligopoly, what examples can you think of for this? Note: Collusion is when firms “work” together

• After looking at the characteristics of monopolistic competition, what examples can you think of?

• After looking at the characteristics of pure competition, what examples can you think of?

Pure Competition Characteristics

• Pure competition is relatively rare in the real worldCharacteristics include:- Must be very large numbers of buyers and sellers- Must deal in identical products- Must act independently (must compete) and is a “price

taker,” meaning it is at the mercy of the market and cannot ask for more money

- Firms are free to enter into, conduct, or get out of business, so there are no significant obstacles

Demand as Seen by a Purely Competitive Seller

AP Review Questions• A requirement of perfect competition is thati. Many firms sell an identical product to many buyersii. There are no restrictions on entry into (or exit from) the

market, and established firms have no advantage over new firms

iii. Buyers are well informed about pricesA. i onlyB. i and iiC. iii onlyD. i and iiiE. i, ii, and iii

E. i, ii, and iii

• For a perfectly competitive corn grower in Nebraska, the marginal revenue curve is

A. Downward slopingB. The same as the demand curveC. Upward slopingD. U-shapedE. Vertical at the profit maximizing quantity of

productionB. The same as the demand curve