, Market models
competion /perfect competition
pure
&
monopolistic competition
· There are 4 market models -
& oligopoly
pure monopoly
imperfect competition
Comparison of markets :
X
as
marketsclothinggers
ricultura
↑
essom
Pure Competition
·
Pure Competition = relatively rare in real world but still relevant
characteristics of
pure competition :
of sellers that offer product in
There is a
large no .
very numbers - national/international markets
large .
2 Standardized product * Purely competitive firms produce a
standardized/identical/homogenous product .
·
There is no attempted to differentiate products
·
They do not
engage
in non-price competitions
Products from diff firms are perfect substitutes for each other
3 Price takers ↑ Individual firms have no control over product price
· firms I
change market price ,
can only adjust to it Cadjust output)
Firm must accept price predetermined by market
↳ eg) firm A
raising price to R2 will shrink profit be firm B sells exact same for RI
4) Free entry and exit D .
There are no
legal/techinal/financial obstacles
preventing firms from
entering/exiting market
, Demand : In a purely competitive market
·
Demand of an individual firm in a purely competitive market = Perfectly elastic
↳
why ?
&
It has no control
because a firm cannot
can it increase sales volumes over price
obtain a higher price nor
by decreasin price
C'price taker'
by restricting its output
Purely Competitive firms demand + revenue curves ;
straight upward sloping
-Total
=
revenue curve
↳ found by price and quantity (TR = P X Q)
demand =
curve horizontal line/ perf clastic be firm can sell
-
as much output as it wants at market price (R13I)
demand is also the
* curve
Average revenue curve
bc price buyer pays per unit = revenue received per unit
AR TR/Q
marketa
·
=
-
a demand curve is also the marginal revenue curve
of output
· MR =
change
in revenue from
selling I more unit
MR = TR/0 &
Profit maximization in short run
Consider
Things
3 to
purely comp market-> only maximize economic profit
M
· .
.
It can
is a price taker by adjusting output should product be produced ?
(
2) If so in what amount ?
,
2 ways to determine the level of output at which a
3) What economic profit will be
competitive firm will max profit/min loss
realized ?
Revenue (MR MC Rule)
Marginal
= or
Total Revenue a
a
Approach P MC
Approach =
·
Profit/Loss = TR-TC
·
If MR), MC -D firm should produce product
·
Profit maximizing case :
& If MRCMC-P firm will shut down
(
·
Totals
-
of
later
stages of
·
PXQ
early stages production
·
Production ↓
b output-high
is low b
output
MC > MR
↳
MR < MC ↳
b
.. not profitable
:
profitable to
to
produce
Produce (shut down)
↳ economic profit is at it's max when firm
a
produces units
competion /perfect competition
pure
&
monopolistic competition
· There are 4 market models -
& oligopoly
pure monopoly
imperfect competition
Comparison of markets :
X
as
marketsclothinggers
ricultura
↑
essom
Pure Competition
·
Pure Competition = relatively rare in real world but still relevant
characteristics of
pure competition :
of sellers that offer product in
There is a
large no .
very numbers - national/international markets
large .
2 Standardized product * Purely competitive firms produce a
standardized/identical/homogenous product .
·
There is no attempted to differentiate products
·
They do not
engage
in non-price competitions
Products from diff firms are perfect substitutes for each other
3 Price takers ↑ Individual firms have no control over product price
· firms I
change market price ,
can only adjust to it Cadjust output)
Firm must accept price predetermined by market
↳ eg) firm A
raising price to R2 will shrink profit be firm B sells exact same for RI
4) Free entry and exit D .
There are no
legal/techinal/financial obstacles
preventing firms from
entering/exiting market
, Demand : In a purely competitive market
·
Demand of an individual firm in a purely competitive market = Perfectly elastic
↳
why ?
&
It has no control
because a firm cannot
can it increase sales volumes over price
obtain a higher price nor
by decreasin price
C'price taker'
by restricting its output
Purely Competitive firms demand + revenue curves ;
straight upward sloping
-Total
=
revenue curve
↳ found by price and quantity (TR = P X Q)
demand =
curve horizontal line/ perf clastic be firm can sell
-
as much output as it wants at market price (R13I)
demand is also the
* curve
Average revenue curve
bc price buyer pays per unit = revenue received per unit
AR TR/Q
marketa
·
=
-
a demand curve is also the marginal revenue curve
of output
· MR =
change
in revenue from
selling I more unit
MR = TR/0 &
Profit maximization in short run
Consider
Things
3 to
purely comp market-> only maximize economic profit
M
· .
.
It can
is a price taker by adjusting output should product be produced ?
(
2) If so in what amount ?
,
2 ways to determine the level of output at which a
3) What economic profit will be
competitive firm will max profit/min loss
realized ?
Revenue (MR MC Rule)
Marginal
= or
Total Revenue a
a
Approach P MC
Approach =
·
Profit/Loss = TR-TC
·
If MR), MC -D firm should produce product
·
Profit maximizing case :
& If MRCMC-P firm will shut down
(
·
Totals
-
of
later
stages of
·
PXQ
early stages production
·
Production ↓
b output-high
is low b
output
MC > MR
↳
MR < MC ↳
b
.. not profitable
:
profitable to
to
produce
Produce (shut down)
↳ economic profit is at it's max when firm
a
produces units
