To contrast perfect competition and monopolies Perfect Competition

To contrast perfect competition and monopolies Perfect Competition vs. Monopoly

Perfect Competition n Market in which numerous buyers and sellers are seeking to trade a similar product

Perfect Competition n Market in which numerous buyers and sellers are seeking to trade a similar product n In this case, the seller does not have complete control over the price

Perfect Competition n Market in which numerous buyers and sellers are seeking to trade a similar product n n In this case, the seller does not have complete control over the price If a market is in perfect comp. , then the producer must meet the price of other sellers

Perfect Competition n Market in which numerous buyers and sellers are seeking to trade a similar product n n In this case, the seller does not have complete control over the price If a market is in perfect comp. , then the producer must meet the price of other sellers n The only way to increase profits is to lower the cost of production while still charging the same price (or increase the number of products sold)

Perfect Competition n In order to be successful in a pc market, companies have to practice diversification

Perfect Competition n In order to be successful in a pc market, companies have to practice diversification n Diversification – increasing the types of products to lower fixed costs

Perfect Competition n In order to be successful in a pc market, companies have to practice diversification Diversification – increasing the types of products to lower fixed costs n May also be done to take advantage of other parts of the market that are not as competitive n

Perfect Competition n The Invisible Hand at work:

Perfect Competition n The Invisible Hand at work: n IF there are too many firms in a competitive market, profits will be low

Perfect Competition n The Invisible Hand at work: n IF there are too many firms in a competitive market, profits will be low n Some firms would close

Perfect Competition n The Invisible Hand at work: n IF there are too many firms in a competitive market, profits will be low n n Some firms would close The fewer the firms in a competitive market, the more profit that can be made

Perfect Competition n The Invisible Hand at work: n IF there are too many firms in a competitive market, profits will be low n n Some firms would close The fewer the firms in a competitive market, the more profit that can be made n The fewer the firms, the higher the price

Perfect Competition n The Invisible Hand at work: n IF there are too many firms in a competitive market, profits will be low n n The fewer the firms in a competitive market, the more profit that can be made n n Some firms would close The fewer the firms, the higher the price Generally in a competitive market, the consumer benefits

Perfect Competition n The Invisible Hand at work: n IF there are too many firms in a competitive market, profits will be low n n The fewer the firms in a competitive market, the more profit that can be made n n Some firms would close The fewer the firms, the higher the price Generally in a competitive market, the consumer benefits n However, the cut prices, firms reduce services and quality (ex. Razor scooter)

Perfect Competition n The Invisible Hand at work: n There can be too many firms in a competitive market

Perfect Competition n The Invisible Hand at work: n There can be too many firms in a competitive market n With little chance for profit, there may not be any $ for research and development of new better products

Perfect Competition n The Invisible Hand at work: n There can be too many firms in a competitive market With little chance for profit, there may not be any $ for research and development of new better products n Highly competitive/low profit firms may not survive a down turn in the economy n

Monopolies ® n Perfect monopoly – a firm is the only supplier of a product

Monopolies ® n Perfect monopoly – a firm is the only supplier of a product n In a monopoly, a seller can charge as high of a price as they want

Monopolies ® n Several factors to take into consideration:

Monopolies ® n Several factors to take into consideration: n The higher the price, the fewer number of people who could afford to purchase it

Monopolies ® n Several factors to take into consideration: The higher the price, the fewer number of people who could afford to purchase it n If prices are too high, it may encourage a competitor to enter the market n

Monopolies ® n Imperfect competition – have most of the control, but not all of the control in a market

Monopolies ® n Three Types of imperfect markets:

Monopolies ® n Three Types of imperfect markets: n Monopolistic competition occurs when there are many producers of a similar product, all claiming that their product is best n Ex. Shampoos, soaps, etc. (people will usually go with the well known name = Kleenex)

Monopolies ® n Three Types of imperfect markets: n Oligopoly occurs when there are very few producers of a product, allowing one to take charge

Monopolies ® n Three Types of imperfect markets: n Oligopoly occurs when there are very few producers of a product, allowing one to take charge n Ex. The auto industry

Monopolies ® n Three Types of imperfect markets: n Natural Monopoly occurs when the product is very expensive to produce

Monopolies ® n Three Types of imperfect markets: n Natural Monopoly occurs when the product is very expensive to produce n Ex. utilities