ENDURING UNDERSTANDING

PRD-3

  • Even with a common goal of profit-maximization, market structure constrains and influences prices, output, and efficiency.
LEARNING OBJECTIVE 

PRD-3.B

  • a. Define (using graphs where appropriate) the characteristics of imperfectly competitive markets and inefficiency.
ESSENTIAL KNOWLEDGE

PRD-3.B.1

  • Imperfectly competitive markets include monopoly, oligopoly, and monopolistic competition in product markets and monopsony in factor markets.

PRD-3.B.2

  • In imperfectly competitive output markets and assuming all else is constant, a firm must lower price to sell additional units. 

PRD-3.B.3

  • In imperfectly competitive markets, consumers and producers respond to prices that are above the marginal costs of production and/or marginal benefits of consumption (i.e., price is greater than marginal cost in an inefficient market).

PRD-3.B.4 

  • Incentives to enter an industry may be mitigated by barriers to entry. Barriers to entry—such as high fixed/start-up costs, legal barriers to entry, and exclusive ownership of key resources—can sustain imperfectly competitive market structures.