Scribd Logo
Upload

Welcome to Scribd!

  • 11 views

    Lecture 13

    Uploaded by

    CHAMP TAHA OFFICIAL
    this is lecture 13 and it is a very good topic you should read and show it to your friends and family they will love it for sure

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd

    Lecture 13

    Uploaded by

    CHAMP TAHA OFFICIAL
    11 views12 pages
    this is lecture 13 and it is a very good topic you should read and show it to your friends and family they will love it for sure

    Copyright

    © © All Rights Reserved

    Available Formats

    PPTX, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    this is lecture 13 and it is a very good topic you should read and show it to your friends and family they will love it for sure

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    11 views12 pages

    Lecture 13

    Uploaded by

    CHAMP TAHA OFFICIAL
    this is lecture 13 and it is a very good topic you should read and show it to your friends and family they will love it for sure

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 12

    Characteristics of Perfect Competition

    1. Many buyers and many sellers.


    2. The goods offered for sale are homogeneous/ same.
    3. Firms can freely enter or exit the market.

     Because of 1 & 2, each buyer and seller is a “price


    taker” – takes the price as given.

    FIRMS IN COMPETITIVE MARKETS 1


    The Revenue of a Competitive Firm
    • Total revenue (TR) TR = P x Q

    TR
    • Average revenue (AR) AR =
    Q
    =P

    • Marginal revenue (MR): ∆TR


    The change in TR from MR =
    ∆Q
    selling one more unit.

    FIRMS IN COMPETITIVE MARKETS 2


    ACTIVE LEARNING 1
    Calculating TR, AR, MR
    Fill in the empty spaces of the table.

    Q P TR AR MR

    0 $10 n/a

    1 $10 $10

    2 $10

    3 $10

    4 $10 $40
    $10
    5 $10 $50
    3
    ACTIVE LEARNING 1
    Answers
    Fill in the empty spaces of the table.
    TR ∆TR
    Q P TR = P x Q AR = MR =
    Q ∆Q
    0 $9 $0 n/a
    $9
    1 $9 $9 $9
    $9
    2 $9 $18 $9
    $9
    3 $9 $27 $9
    $9
    4 $9 $36 $9
    $9
    5 $9 $45 9
    4
    MR = P for a Competitive Firm
    • A competitive firm can keep increasing its
    output without affecting the market price.
    • So, each one-unit increase in Q causes revenue
    to rise by P, i.e., MR = P.

    MR = P is only true for


    firms in competitive markets.

    FIRMS IN COMPETITIVE MARKETS 5


    Introduction
    • A monopoly is a firm that is the sole seller of a
    product without close substitutes.
    • In this chapter, we study monopoly and
    contrast it with perfect competition.
    • The key difference:
    A monopoly firm has market power, the ability
    to influence the market price of the product it
    sells. A competitive firm has no market power.

    MONOPOLY 6
    Why Monopolies Arise
    The main cause of monopolies is barriers
    to entry – other firms cannot enter the
    market.
    Three sources of barriers to entry:
    1. A single firm owns a key resource.
    E.g., DeBeers owns most of the world’s
    diamond mines
    2. The govt gives a single firm the exclusive
    right to produce the good.
    E.g., patents, copyright laws
    3. Natural monopoly: a single firm can produce
    the entire market Q at lower cost than could
    several firms. MONOPOLY 7
    Introduction:
    Between Monopoly and Competition

    Two extremes
    – Perfect competition: many firms, identical products
    – Monopoly: one firm

    In between these extremes: imperfect


    competition
    – Oligopoly: only a few sellers offer similar or
    identical products.
    – Monopolistic competition: many firms sell similar
    but not identical products.
    MONOPOLISTIC COMPETITION 8
    Characteristics & Examples
    of Monopolistic Competition

    Characteristics:
    – Many sellers
    – Product differentiation
    – Free entry and exit
    Examples:
    – apartments
    – books
    – bottled water
    – clothing
    – fast food
    – night clubs
    MONOPOLISTIC COMPETITION 9
    Comparing Perfect & Monop. Competition
    Perfect Monopolistic
    competition competition

    number of sellers many many


    free entry/exit yes yes

    long-run econ. profits zero zero

    the products firms sell identical differentiated

    firm has market power? none, price-taker yes


    downward-
    D curve facing firm horizontal
    sloping

    MONOPOLISTIC COMPETITION 10
    Comparing Monopoly & Monop. Competition
    Monopolistic
    Monopoly
    competition
    number of sellers one many

    free entry/exit no yes

    long-run econ. profits positive zero

    firm has market power? yes Yes/Limited


    downward-sloping
    downward-
    D curve facing firm
    sloping
    (market demand)
    close substitutes none many
    MONOPOLISTIC COMPETITION 11
    Oligopoly
    • Oligopoly: a market structure in which only a
    few sellers offer similar or identical products.
    • Strategic behavior in oligopoly:
    A firm’s decisions about P or Q can affect
    other firms and cause them to react. The firm
    will consider these reactions when making
    decisions.
    • Game theory: the study of how people
    behave in strategic situations.
    OLIGOPOLY 12

    You might also like