Pure Competition in the Short and Long Run

This is the only lesson that will entail 2 chapters. Both cover the same market type with the only difference being time frame, short run vs. long run. Please read the Chapter and then complete the Chapter 10 written assignment
Watch the videos below to understand real world examples of “Perfect Competition”..
Once you have watched the videos, please discuss the following:
– How do the conditions of a Perfectly Competitive Market lead suppliers being a Price taker, not a price maker.– What actions can a supplier in a Perfectly Competitive Market take to increase profits.
It is crucially important that you understand the 5 profit positions of firms, those will be used in all of the chapters until the end of the course, along with the cost graphs studied in chapter 9. PLEASE do not just skip by those sections, you will struggle with the remaining chapters if you do.For the remainder of the course, we will be discussing, the 4 basic market (industry) types that are characteristic in a Market Economy. They are:– Perfect (Pure) Competition.– Monopolistic Competition– Oligopoly– MonopolyKeep In mind, when we talk about a “market” here, we are talking about an industry. All the firms in a single industry are in the same “market”, and that market is one of the 4 market types. So examples of industries are: automobiles, cell phone service, healthcare, cable tv service, pharmaceuticals, hardware, packaged food, airlines, clothing, wine, computers, eyeglasses, Christmas trees, bread, and so forth. There are thousands of industries.Within each industry are firms (or companies), so within the AIRLINE industry there are United, American, US Air and also international airlines like Quantas, British Air. Within the cell phone industry in the US there are Apple, Samsung, LG, Motorola and others. Within the cell phone service industry, there is ATT, Verizon Wireless, T-Mobile and others. These are all separate industries with different characteristics.Every day we deal with companies in each of these industries and market types. Some firms (companies) remain in their specific market type forever, for example the local pizza shop. Sometimes firms attempt to move from one market type to another, locally, Canal Liquor stores is attempting to move to a local oligopoly status from originally being in Perfect Competition.Each of those 4 market types above have very specific characteristics which place them in that market type and prevent them from reaching the other market types. They will only move to another market type once they develop the characteristics of that market.Each market type operates very, very differently in terms of how it:– maximizes profits– sets prices.– responds to changes in the determinants of demand– responds to changes in the determinants of supply– produces it product/service.– makes fundamental business decisions.You will need to know all of those differences, and answer questions about all of the market types and their characteristics in this last part of the course.I STRONGLY suggest that you build a chart that lists the 4 market types and their characteristics as you go along through these 4 chapters. That would be a KEY resource in preparing for the last exam, which will focus solely on those characteristics.You could also find many versions of the chart on the internet by searching Market type characteristics and then selecting images. However, I’d recommend that you build your own and while you read the remaining chapters, watch the videos and do Learn Smart questions, continue to build your version of the chart, it will help you study. The “characteristics that I will be focusing on are:– Number and Size of Firms– Product Characteristics– Control over pricing– Do barriers of entry exist?– Describe the product demand and demand curve.– Typical type of profits earned by firms in the industry.– Any government involvement in this type of market.Below you will see a version that I took from the internet, to give you an example of what I am talking about. Again, it’s your choice to build your own, or use another, but the process of writing it down yourself will help you retain the material.There are very, very specific characteristics to these markets and you need to know them to understand them. For example, I am going to list a set of characteristics that apply to some of these industries, over time hopefully you can identify which industry and why.Final point. Don’t forget “WHY”. You will get much better grades on your discussion and on the exam essay questions by explaining WHY you answered as you did. Good luck, and here is that list of “odd” characteristics.– In one of the market types, the firms have zero control over pricing. The only way they can manage their profits is by controlling their costs.– One of the market types has a “kinked” demand curve, which changes direction at the equilibrium price.– Of all the product advertising we see on TV, 99% of it comes from firms that fall into the same market type, the other three market types rarely advertise.– In one of the market types, firms almost never compete with each other using price, their strategy to maximize profits is to take customers from competing firms using other means.– In one of the market types, consumers consider the products offered by all firms to be identical, with no advantage to buying one firm’s product over another’s.– This market type is the most heavily regulated by the government, often to the point where the government sets your price.Below is the sample chart I pulled from the internet. Note in this section of the course we will use the terms INDUSTRY and MARKET interchangably.Market Type / Characteristics Perfect Competition Monopolistic Competition Oligopoly MonopolyNumber of Firms Many Many Few One (firm is the industry)Size of Firms Small Small Few Large, possibly some smaller. Generally Large, not alwaysType of Product Homogenous Product is differentiated Homogenous or Differentiated DifferentiatedBarriers to Entry None None High Very High, Entry blocked.Price Control Price Taker Some flexibility to Make Prices Price Maker, Mutual Interdependence Price Maker, possibly regulated pricing.Profit Potential Normal Profits Economic Profit potential Economic Profits Economic ProfitsDemand Curve for Firm Perfectly Elastic, Horizontal Downsloping Downsloping, Kinked Downsloping, the Industry demand curveExample Agriculture, any open market based product, i.e. stocks, energy, currency, commodities Pizza, many services (Hair Salons, Tax Prep, Nail Salons, Lawn Care), Small retail stores, Almost all industries that engage in media advertising: (Cars, Airlines, Pharmeceuticals, Insurance, Cell Service, on-line retailing, Cable TV, Fast Food) etc. Local Electric, Gas, Water distribution, Diamonds,