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Microeconomics (Vladis) Perfect Competition & Monopoly
MARKET STRUCTURES
1) CLASSIFYING MARKETS
Number of firms
Freedom of entry to industry
Nature of product
Nature of demand curve
2) FOUR MARKET STRUCTURES
Perfect Competition
Monopoly
Monopolistic Competition
Oligopoly
PERFECT COMPETITION ASSUMPTIONS
1) PRICE TAKERS
Too many firms in the market so firms do not have influence on PRICE.
No incentive to charge a price level ABOVE the cost of production or COMPETITORS.
2) FREEDOM OF ENTRY OR EXIT
Any firm can enter and exit the market at any time they wish.
No BARRIERS.
3) IDENTICAL PRODUCTS
HOMOGENOUS PRODUCTS
4) PERFECT KNOWLEDGE
EVERYONE knows what is going on in the market.
Perfect knowledge of DEMAND and SUPPLY factors.
SHORT RUN
In the short run, the perfectly competitive firm has POSITIVE PROFITS.
AR > AC
Shaded box = PROFIT
LONG RUN
Firms outside the market will identify PROFIT
OPPORTUNITIES.
MORE firms will ENTER the market.
Aim to get customers by charging a
LOWER PRICE.
INCUMBENT firms will RESPOND by also
LOWERING their price in order to
COMPETE with NEW ENTRANTS.
DOWNWARD PRESSURE ON PRICE.
AR will = AC.
No more incentive to enter the market
by new firms.
Market is now under EQUILIBRIUM.

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Microeconomics (Vladis) – Perfect Competition & Monopoly MARKET STRUCTURES 1) CLASSIFYING MARKETS ❖ Number of firms ❖ Freedom of entry to industry ❖ Nature of product ❖ Nature of demand curve 2) FOUR MARKET STRUCTURES ❖ Perfect Competition ❖ Monopoly ❖ Monopolistic Competition ❖ Oligopoly PERFECT COMPETITION ASSUMPTIONS 1) PRICE TAKERS ❖ Too many firms in the market so firms do not have influence on PRICE. ❖ No incentive to charge a price level ABOVE the cost of production or COMPETITORS. 2) FREEDOM OF ENTRY OR EXIT ❖ Any firm can enter and exit the market at any time ...
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