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  1. U.S. Economy How close to Adam Smith’s World? No Competition Pure Free Market <============================================ Perfect Competition Monopolistic Competition OLIGOPOLY Monopoly

  2. Oligopoly Examples • Car makers • Steel industry • Aircraft manufacturing • Oil industry • Airlines • Tobacco industry • Beer industry • Soda industry • Home Improvement • Music recording industry • Textbook industry • Wireless communications industry • Aerospace industry

  3. Automobile Production Airliner Production Can you have Perfect Competition in: N0, because of Economies of Scale. Economic Activity is often MORE EFFICIENT when done on a LARGE SCALE

  4. Economies of Scale Definition: factors that cause a producer’s average cost per unit to fall as output rises

  5. Economies of Scale Example 1 unit of energy 1000 units of energy 10,000 units of energy 100,000 units of energy 1,000,000 units of energy 100 units of energy Cost of building power plant (fixed cost) $10,000,000 $10,000,000 $10,000,000 $10,000,000 $10,000,000 $10,000,000 Cost per unit of energy produced $100,000 $10,000 $1000 $100 $10 $10,000,000