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Market Equilibrium and Market Demand: Imperfect Competition

Discussion Topics. Market structure characteristicsImperfect competition in sellingImperfect competition in buyingMarket structure in livestock industryGovernmental regulatory measures. . Market Structure Characteristics. Number of firms and size distributionProduct differentiationBarriers to entryPicture here tells a tale of two markets (no. 2 yellow corn vs. farm equipment).

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Market Equilibrium and Market Demand: Imperfect Competition

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    1. Market Equilibrium and Market Demand: Imperfect Competition Chapter 9

    2. Discussion Topics Market structure characteristics Imperfect competition in selling Imperfect competition in buying Market structure in livestock industry Governmental regulatory measures

    3. Market Structure Characteristics Number of firms and size distribution Product differentiation Barriers to entry Picture here tells a tale of two markets (no. 2 yellow corn vs. farm equipment)

    4. Perfect Competition Up to now we have been assuming the firm and market reflect the conditions of perfect competition… farmers come close as anybody to meeting these conditions. A large number of small firms (2 million farms) A homogeneous product (no. 2 yellow corn) Freely mobile resources (no barriers to entry caused by patents, etc. or barriers to exit) Perfect knowledge of market conditions (quality outlook information from government and university sources)

    5. Merging Demand and Supply

    6. Firm is a “Price Taker” Under Perfect Competition

    7. If Demand Increases……

    8. If Demand Decreases……

    9. Firm is a “Price Taker” in the Input Market

    10. Firm is a “Price Taker” in the Input Market

    11. Effects of Increasing the Minimum Wage

    12. Imperfect Competition Many of the markets in which farmers buy inputs and sell their products however do not meet these conditions This chapter initially focuses on specific types of imperfect competitors in the farm input market, where firms are capable of setting the prices farmers must pay for specific inputs to their production.

    13. Imperfect Competition in Selling

    16. Types of Imperfect Competitors in Input Markets Monopolistic competition Oligopoly Monopoly

    17. Monopolistic Competitors Many sellers Ability to differentiate product by advertising and sales promotions Profits can exist in the short run, but others bid them away in the long run Equate MC with MR, but price off the downward sloping demand curve

    22. Top 10 Burger Restaurants

    23. Oligopolies A few number of sellers Non-price competition between oligopolists Match price cuts but not price increases by fellow oligopolists Like monopolistic competitors, they have some ability to set market prices

    28. Examples of Oligopolists Farm machinery manufacturers Domestic automobile industry Domestic airline industry Pesticide and fertilizer industry

    29. Monopolies Only seller in the market Entry of other firms is restricted by patents, etc. They have absolute power over setting market price They produce a unique product They can make economic profits in the long run because they can set price without competition.

    43. Imperfect Competition in Buying

    44. Types of Imperfect Competitors on the Buying Side Monopsonistic competition Oligopsony Monopsony

    45. Monopsonies Single buyer in the market Focus is on the marginal input cost of purchasing an addition unit of resources Will equate MVP=MIC when making buying decisions As long as MVP>MIC, the monopsonist makes a profit

    54. Monopsonistic Competitors Many firms buying resources Ability to differentiate services to producers Differentiated services includes distribution convenience and location of facilities, willingness to provide credit or technical assistance P and Q determined same as monopsonist

    55. Oligopsonies A few number of buyers of a resource Profit earned will depend on elasticity of supply for resource (less elastic than monopsonistic competition Each oligopsonist knows fellow oligopsonists will respond to changes in price or quantity it might initiate P and Q determined same as monopsonist

    57. Governmental Regulatory Measures

    58. #1:Legislative Acts Sherman Antitrust Act Packers and Stockyards Act Cooperative Marketing Act Robinson-Patman Act Agricultural Marketing Agreement Act

    69. Summary Unlike perfect competition, imperfect competitors have ability to influence price. Monopolistic competitors try to differentiate their product. Monopolists are the only seller in their product market. Monopsonists are the only buyer. Oligopolies are a few number of sellers while oligopsonies are a few number of buyers. Know the economic welfare implications of imperfect competition.

    70. Chapter 10 focuses resource use in agriculture and the environment….

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