Competition and Market Structures - Chapter 7.1 Lecture and Worksheet Make-up

1. Agenda 11/15 • Test makeups • Current events • Ch. 7 Sec. 1 Lecture • Ch. 7 WS + book questions (If you were gone Tuesday you MUST start your make-up exam right now!!!) GRAB A TEXTBOOK AND THE WORKSHEET!

2. New Notebook Unit!!!!! UNIT 3 - Competition and Market Structures Chapter 7.1 (everyone needs a book at their desk please)

3. Competition (read – don’t write ) • 1776 the average factory was small, and business was competitive • Laissez-faire philosophy was used, hands off or allow them to do. • Government’s role under Laissez-faire: protect the business from imported goods • 1800’s small firms began to merge and form larger ones • Competition began to weaken

4. Market Structure • The nature and the degree of competition among firms operating in the same industry • Economist group them into 4 categories: • Perfect competition • Monopolistic Competition • Oligopoly • Monopoly Market Structure (we will be pausing the video thru out to write down the Market range)

5. PREVIEW OF THE FOUR MARKET STRUCTURES Look at the Chart on page 175

6. Perfect competition: • Perfect competition happens when numerous small firms compete against each other. • Firms in a competitive industry produce the socially optimal output level at the minimum possible cost per unit.

7. Monopolistic competition: • In monopolistic competition, an industry contains many competing firms, each of which has a similar but at least slightly different product. • Restaurants, for example, all serve food but of different types and in different locations. • Production costs are above what could be achieved if all the firms sold identical products, but consumers benefit from the variety.

8. Oligopoly: • An oligopoly is an industry with only a few firms. • If they collude, they reduce output and drive up profits the way a monopoly does. • However, because of strong incentives to cheat on collusive agreements, oligopoly firms often end up competing against each other. Oligopoly

9. Monopoly: • A monopoly is a firm that has no competitors in its industry. • It reduces output to drive up prices and increase profits. By doing so, it produces less than the socially optimal output level and produces at higher costs than competitive firms.

10. Types of Monopolies • Natural Monopoly-Cost of production is lower with just one firm producing it: Telephone companies • Public Utilities too • Economies of scale- average price falls as the firm gets larger • Geographic Monopoly- Based on location- absence of other sellers

11. Types of Monopolies (cont.) • Technological Monopoly - Ownership or control of a manufacturing method, process, or other scientific advance. • Governmental Monopoly – • Government owns and operates • Not beneficial for private companies to run • Water • Alcoholic Beverage control, state stores • Processing of Uranium (Weapons Grade)

12. Econ Homework • Handout –Ch. 7 • (7-1 Guided reading/Ch. 7 Market Structures) • On piece of paper do: “Photo” questions – p. 170, 171, 173, & 176