And it’s Friday…
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SUBTITLE
SSEMI4 The student will explain the
organization and role of business and analyze
the four types of market structures in the U.S.
economy.
a. Compare and contrast three forms of business organization—sole
proprietorship, partnership, and corporation.
b. Explain the role of profit as an incentive for entrepreneurs.
c. Identify the basic characteristics of
monopoly, oligopoly, monopolistic
competition, and pure competition.
MARKET
STRUCTURE
# 1:
PERFECT/PURE
COMPETITION
 Make
Barriers to Entry
it difficult for new
firms to enter the
market
 Barriers can RESTRICT
competition
2
Common Barriers
include:
1.
Start-up costs
2.
Technology
A
Pure/Perfect Competition
perfectly competitive market
 Large # of firms that produce
the same product
 Must meet 4 conditions
 1.
Many buyers & sellers
 2. Sellers offer identical
products
 3. Buyers & sellers are well
informed
 4. Sellers are able to enter &
exit the market
Perfect/ Pure Competition
Ex. Agriculture

Tomatoes

Lots of buyers and sellers

Tomatoes are identical

Buyers and sellers are
informed about product

Anybody can sell produce
or quit selling produce
2.
Sellers offer identical products
Commodity- product that is the same
regardless of who makes or sells it (lowgrade gas, notebook paper, & milk)
 This is key to perfect competition for 1
reason: buyer will not pay extra for one
particular company’s goods. Instead,
buyer will choose the product with the
lowest price.
=
Price & Output
 The
role of
competition in a
perfect market keeps
prices & production
costs low
Prices
in a perfectly
competitive market
are the lowest
sustainable prices
possible
Why is it a Monopoly?
Monopolies
form when barriers
prevent firms from entering a
market that has a single
supplier
Basically, barriers to entry are
why monopolies exist
Monopolies have one trait in
common: a single seller in a
market
Types of Monopolies
Government
Monopolies –
a monopoly
created by the
government
Types of Monopolies
Technological
monopolies:
issues a patent, which gives
a company exclusive rights to sell a good or
service
government
Government
does this to encourage
research to benefit society
Franchise – gives a single firm the
right to sell its goods within an exclusive
market (government parks)
License – grants firms the right to
operate a business
Industrial
Monopolies
Major League
Baseball
National Football
League
Monopolistic Competition
Companies
compete in a
market to sell products that
are similar but not identical
Goods can be substituted for
one another but are not the
same
Ex:JEANS
4 Conditions of Monopolistic Competition
1. Many firms: new firms can enter market
2. Few artificial barriers to entry
3.
Slight control over price: have some freedom to
raise or lower prices
We pay more for Coca-Cola than store brand cola
4.
Differentiated products: enables sellers to profit
from the differences b/t his or her products
Oligopoly
 Describes
a market dominated
by a few large, profitable firms
 The 4 largest firms produce at
least 70 to 80 percent of the
output
 Air travel, breakfast cereals, &
household appliances
Oligopoly
 Forms
when significant barriers to entry
keep new companies from entering the
market
 Problems:
oligopolies seem to work
together to form a monopoly
 Collusions-
agreement to set prices &
production levels
 Cartels-
agreement to coordinate prices &
production