EC120 Chapter Notes - Chapter 16: Invisible Hand, Economic Surplus, Natural Monopoly
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EC120 Full Course Notes
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Document Summary
Perfectly competitive market: price = marginal cost; in long run, entry and exit drive economic profit to zero so price = average total cost. Monopolies: firms use market power to keep prices above marginal cost positive economic profit for firm and deadweight loss for society. Competition and monopoly are extreme forms of market structure. Competition = many firms in market offering essential identical products. Monopoly = only one firm in market. Imperfect competition: industries between perfect competition and monopoly. Highly concentrated industries: breakfast cereal, aircraft manufacturing, electric lamb bulbs, household laundry equipment, and cigarettes. Many sellers: many firms competing for same customers. Product differentiation: each firm produces product that"s slightly different from other firms rather than being price taker, each firm faces downward sloping demand curve. Free entry and exit: firms can enter/exit market without restriction number of firms in market adjusts until economic profits are zero: e. g. Book markets, cd markets, movies, computer games, restaurants, cookies.