1. On slates1. Describe a time you
paid more money for a
good or service you
thought was better
quality.
2. Describe a time when
you bought a good or
service that was cheaper
than other brands.
3. Does competition
make us perform better?
2. Competition experiment
• 3 groups
• 1 volunteer
• Group of 4, can talk
• Everyone else, can’t
talk
• Think about price &
quality
I will buy one
for up to $1
Widget:
WPrice: $
Your name:
3. Pricing power
• Some firms can choose their own price
• Price makers
• Some firms must take the prices the
market gives them
• Price takers
4. On your slate
4. How much pricing power did you have
during the simulation? Explain why.
5. Why do consumers benefit from
competition? Use three specific business
examples in your answer
6. Why do producers suffer from competition?
7. Why does pricing power depend on the
number of firms in the market?
6. Bellringer
1. How many players
win the game
“Monopoly” if you play
it until the end?
No we won’t be playing
it in this class.
2. How many firms
supply lunch here at
Flowing Wells?
3. How would things
change if FW allowed
multiple firms to sell
lunch?
8. Monopoly
• A market for a
good/service with
one dominate seller
• Firm has total
“pricing power”
• Has extremely high
entry costs, OR
impossible
• Walmart?
• Amazon?
9. Types of surplus
• Consumer surplus: difference between budget
and actual price
• Producer surplus: difference between cost and
price (really just profit)
Budget:
$50
Actual:
$40
15. Types of Monopoly
• Geographic
• Only firm in a
certain area
• Fences
• Small towns
• Other
example?
• Draw PEST
change on
board
16. Types of Monopoly
• Government
• Granted by the
government
• “public utilities”
• Reasoning?
17. Types of Monopoly
• Technological
• Due to
technology
• (Patents)
• (Copyrights)
• Software,
biotechnology,
artistic
• Reasoning?
• examples
18. On your slate
Name the type of monopoly & why
4. Fernanda designs a new game app
5. Popcorn at Harkins movie theater
6. Interstate Highways like I-10 or I-19
7. The only mechanic Ajo, Arizona
8. School lunches at Pueblo
9. Snacks in certain Pueblo classrooms
10.Secret recipe for Gatorade
11.US military
12.Tucson Water Company
13.Expensive soda at a baseball game
19. Closure questions
4. Why do economists worry about
monopolies? (hint: think about prices)
5. Why are technological monopolies
allowed to exist? (think about creative
businesses)
6. Do you think government monopolies are
always positive for consumers? (consider
our school lunches, or the AZ MVD)
20. For the other 3 Market Structures
• Monopoly
• Monopolistic
Competition
• Perfect
Competition
• Oligopoly
• Split into two groups
• 1 group
makes/writes lesson
• 1 group writes
simulation, game or
5 min skit (everyone
talks)
• 10/10 if everyone
participates and its
easy to understand
21. Perfect Competition Market
• Features:
• Many firms
• Nearly identical products
• No pricing power
• Same Price!
• Easy to start new firm
• Easy to close down firm
• Perfectly informed
consumers
• Costs really important
Other Examples?
22. Monopolistic Competition Market
• Features:
• Many firms
• Different or perceived
different products
• Some pricing power
“price makers”
• Different prices
• Can be easy to start new
firm
• Can be easy to close down
firm
• Not fully informed
consumers
Other Examples?
23. Oligopoly Market
• Features:
• Few very large firms
• Very similar products
• Some pricing power
“price makers”
• Difficult to enter market
• Difficult to close down
company
• Not fully informed
consumers
Other Examples?
40. Costs
• Put the following businesses in order by how
expensive they would be to start up starting
with the cheapest:
• NFL team
• Landscaping
• Restaurant
• Television station
• Company that writes phone apps
• Lemonade stand
• T-shirt (silkscreen) printer
42. THE COSTS OF PRODUCTION 42
Total Revenue, Total Cost, Profit
• We assume that the firm’s goal is to maximize
profit.
Profit = Total revenue – Total cost
the amount a
firm receives
from the sale
of its output
the market
value of the
inputs a firm
uses in
production
44. Let’s think more specifically about costs
• Fixed Costs = costs that do not change based on
production and don’t change in SR
• Examples: capital goods, tools, buildings, menus
Nokia factory in Finland
Coke factory in Atlanta, Georgia
45. Special fixed costs
• “Entry costs” – costs to start up the business
Firms with low
Entry costs
Firms with very high
Entry costs
46. Costs we can change in the short run
Variable costs = costs
that change based
on production
The more I produce,
the more cost I will
incur.
If I don’t produce at
all, my variable
costs will be 0
For example: labor,
electricity, raw
materials
Nike factory in China
48. Marginal Costs
• Marginal costs = the
cost of producing 1
additional unit
• For example:
• Why helpful?
• Diminishing
marginal product!
Widgets
0
1
2
3
4
FC
1
1
1
1
1
VC
0
6
11
16
22
MC
X
49. Total Costs
• Total Costs = fixed + variable costs
For example:
Widgets
0
1
2
3
4
FC
1
1
1
1
1
VC
0
1
2
3
5
TC
1
2
3
4
6
MC
X
1
1
1
2
Revenue
0
2
4
6
8
Assume Widgets
price
$2/each
Profit
-1
0
1
2
2
50. Short Quiz
1. Write 3 examples of FC for this firm
2. Write 3 examples of VC for this firm
3. How could this firm increase its TR?
4. Give an example of diminishing marginal
returns for this firm
