5 Steps to a 5 AP Microeconomics, 2014-2015 Edition

Market Structures, Perfect Competition,

Monopoly, and Things Between

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CHAPTER

9

IN THIS CHAPTER

Summary:Chapter 7 presented the relationship between product demand,

elasticity, and total revenue. Chapter 8 introduced the concept of economic

profit and presented the theory behind production and costs. This chapter puts

revenue and cost together to examine how a firm chooses the profit-maximizing

level of output and price of the product. But this profit-maximizing decision

depends very much upon the structure in which the firm operates. At one

extreme there are many perfectly competitive firms, each too small to have a

measurable impact on market price, much less each other. At the other

extreme there is one firm, a monopolist, that absolutely controls the industry

price and output. In between are various shades of each extreme, some closer

to monopoly, and some closer to perfect competition. It is important to realize

that there is no “representative” industry, or market structure, so we focus on

four general models and study how firms in these structures determine price

and output. In addition to the extremes of perfect competition and monopoly,

we cover the models of monopolistic competition and oligopoly. This chapter

also introduces you to some basic game theoretic models.

KEY IDEA

Monopoly

Monopolistic Oligopoly

Competition

Perfect

Competition

Key Ideas

JPerfect Competition

JMonopoly

JMonopolistic Competition

JOligopoly

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