9th May E-learning Tutorial Part (a): Overview of Market

Structure
Watch the following video: http://www.youtube.com/watch?v=9Hxy-TuX9fs
Answer the following questions:
1) How can you identify a market structure? ________________________

From your notes: write down the definition of market structure:

_________________________________________________________________________

2) There is a ____________ of market structures.

3) Explain the 3 characteristics of a perfectly competitive (PC) market.

a) A large number of firms mean

________________________________________________
_________________________________________________________________________
b) _________________________________________________________________________
_________________________________________________________________________
c) _________________________________________________________________________
_________________________________________________________________________

4) From your notes: what are the other 2 characteristics of a PC market?

_____________________ and ___________________________

5) What is the definition of market power?

___________________________________________

6) What are the 3 characteristics of a monopoly market?

a. _______________

b. __________________

c. ____________________

7) What is the relationship between the characteristics of market structures and

market power?

_____________________________________________________________________________
_____________________________________________________________________________

8) Which characteristic do you think is the most significant determinant of

market power?

_______________________

Why???

9) What are the 3 characteristics of a monopolistically competitive market?

a. ________________

b. __________________

c. ____________________

10)
What lesson about the topic of market structure can you learn
from the toothbrush example?

_____________________________________________________________________________

Please dont tell me that you discovered glow-in-the-dark toothbrushes or

toothbrushes that indicate when you need to change them.

11)
What is different about the oligopoly market as compared to other
markets?
______________________________________________________________________________

12)
Answer the question in the video. Give one real-life example not
mentioned in the video of each market structure and explain why using
the characteristics provided.

In the video, you realize the characteristics of the different market

structures affect the market power of the firm in each market structure,
as well as how competitive the market is. In essence, the characteristics
of the market structure will affect how firms behave in each market, in
terms of price, output and other non-price strategies. From their behavior,
we can then assess the performance of the firms within each market in
terms of efficiency, choice, equity, innovation and overall welfare to
society. For an overall picture of market structure, please see mindmap in
lecture notes.

9th May E-learning Tutorial Part (b): Introduction to Perfect

Competition (PC)
Watch the following video: http://www.youtube.com/watch?
v=61GCogalzVc&feature=related
Answer the following questions:
1) What is the significance of having perfect information in a PC market?
_____________________________________________________________________________
2) What is the purpose of having industry-wide campaigns?
_____________________________________________________________________________
3) What are the 2 outcomes of the characteristics of the market?
________________________________ and ______________________________
Classify the two above into behavior of firm vs. performance of firm
4) The PC firm will price at _____________________________________ and is therefore
a ____________________________.
5) Using the video, answer the two questions on pg 38 of your lecture notes.
6) Therefore, the PC firms demand curve is _____________________________
(relate to earlier topic)
Everyone! Please differentiate between the firms demand curve and the industrys
demand curve!
7) The PC firm cannot choose its ________________ but it can choose its
_______________. The PC firm will produce at the
____________________________________
8) What is the definition and formula of marginal revenue?
____________________________________________________________________________
9) Why is price equal to marginal revenue for the PC firm?
____________________________________________________________________________
10)
At 6.36, the video says positive profits are earned. What do we call
these profits?
____________________________

11)
In the long run, the video says that a PC firms profits are always equal
to zero. What do we call these profits?
____________________________
You have been given an example where AR > ATC in the short-run and the
firm earns positive economic profits. Now, draw the industry DD/SS
diagram and the cost/revenue diagram of the PC firm, indicating when the
firm earns subnormal profits in the short-run.
(i) Indicate clearly the equilibrium price, p*.
(ii) Indicate clearly the profit-maximizing output, q*.
(iii)Indicate clearly area of TR and TC and the area of subnormal profits.
(iv)

What will happen in the long-run with the freedom of entry and exit by
firms?

________________________________________________
What happens to the industry supply? Show this on the diagram.
(v) Prove that the long-run equilibrium of the firm is: at output q*, ATC=AR and
output q* occurs at the minimum point of the ATC curve.

A third case is that the PC firm may earn exactly normal profits in the
short-run.

In the next tutorial, after we complete Costs of Production, we will move on to

the short-run shut down condition of the PC firm. We have now covered Pg 15 to
20 of COP notes and until Pg 40 of Market Structure notes
Now, do you think that it is possible for firms in other market structures to have
supernormal profits, subnormal profits or normal profits in the short-run? Should
a firm in the oligopolistic or monopolistic industry earn supernormal profits, what
will happen to the firm in the LR?