Transcript there are no differences between products sold by different suppliers

SSE14 – Students will
explain the Characteristics
of Pure Competition
• You have to --– Know what pure competition
is.
– Understand How it works.
• Buyers view
• Suppliers view
• Interacting with previous
learning such as marginal costs,
supply & demand, etc.
– Be able to integrate concepts
& goals between supplier &
consumer.
EQUALIBRIUM
100
90
PERFECT
COMPETITION
80
70
60
50
40
30
20
10
0
1
1
2
3
4
5
6
7
8
9
10
2
Amount of demand
3 4
5
6
7 8
9
10
Amount Supplied
Perfect (Pure)
Competition
• The simplest market
structure is called perfect
competition.
– A perfectly competitive market
is one with a large number of
firms producing the same
product.
– Perfect Competition assumes
• equilibrium
• that all firms sell the same
product.
• No single firm can hope to
influence price.
• Four conditions for Perfect
Competition
– Many Buyers & sellers
participate in the market
• No one individual can powerful
enough to buy or sell enough
goods to influence the total
market.
– At & T created a monopoly.
• Market determines prices
influenced only by “The Invisible
Hand.”
– Identical Products – there are
no differences between
products sold by different
suppliers.
• Products that is considered the
same are called commodities.
– Identical Products – there are
no differences between
products sold by different
suppliers.
• Products that is considered the
same are called commodities.
• Low-grade gasoline, milk,
notebook paper are considered
commodities because a buyer will
not pay extra.
– Informed buyers & Sellers –
buyers are provided with full
information about the features
of a product and its price.
– Free Market Entry & Exit –
sellers can get in and out at will
• Making money they can stay.
• Losing money they can quit.
• Whatever.
• Barriers to Entry
– Start up costs – when costs
are high new firms won’t enter
the market.
– Technology• Know how
• Technical skills (example:
opening up a counseling
practice)
– Price Output• Capital
• Human capitol
MONOPOLIES
• A Monopoly is a market
dominated by a single seller.
– A monopoly is formed when
barriers prevent firms from
entering the market that has a
single supplier.
• Microsoft windows
• New medicine (Tylenol)
• Forming a Monopoly –
– Economies of Scale – Factors
that cause a firm’s average
cost per unit to decrease as
output rises.
–
• Forming a Monopoly –
– Economies of Scale – Factors
that cause a firm’s average
cost per unit to decrease as
output rises.
• EXAMPLE – if it costs $1000.00
to open a bakery, to set up, and
to pay an individual then if the
first cake costs 10.00 to make
the initial cost is $1010.00. If
every cake costs $10.00 to make
the start up cost plus the cost of
the cake is averaged over each
cake made. If the bakery makes
50 cakes at $10 / cake = $500.00
+ $1000.00/50 = $30.00.
• It becomes cheaper and cheaper
for the company to produce that
good. In the long run that
company can operate cheaper
and more efficiently than another
company trying to get into the
business.
• Forming a Monopoly –
– Economies of Scale – Factors
that cause a firm’s average
cost per unit to decrease as
output rises.
• It becomes cheaper and cheaper
for the company to produce that
good. In the long run that
company can operate cheaper
and more efficiently than another
company trying to get into the
business.
– A Natural monopoly – is one
where the market runs more
efficiently when one large firm
provides all the output.
(Georgia Power)
• Technology & Change – The
development of new
technology can allow smaller
entrepreneurs to enter into
the market with less start up
cost.
– Examples –
• internet retail
• Printing Companies / computers