MBF GE Micro PPT Ch11

Topics: Costs, Monopoly, Economics, Marginal cost, Variable cost, Profit maximization / Pages: 25 (921 words) / Published: May 9th, 2015
11
Pure Competition in the Short
Run

McGraw-Hill/Irwin

Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

Four Market Models

• Pure competition
• Pure monopoly
• Monopolistic competition
• Oligopoly
Pure
Competition

Monopolistic
Competition

Oligopoly

Pure
Monopoly

Market Structure Continuum
LO1

Four Market Models
Characteristics of the Four Basic Market Models
Pure
Characteristic Competition

Monopolistic
Competition

Oligopoly

Monopoly

Number of firms

A very large number Many

Few

One

Type of product

Standardized

Differentiated

Standardized or differentiated Unique; no close subs.

Control over price None

Some, but within rather narrow limits

Limited by mutual inter-dependence; considerable with collusion Considerable

Conditions of entry Very easy, no obstacles Relatively easy

Significant obstacles Blocked

Nonprice
Competition

None

Considerable emphasis on advertising, brand names, trademarks

Typically a great deal, particularly with product differentiation Mostly public relation advertising

Examples

Agriculture

Retail trade, dresses, shoes Steel, auto, farm implements Local utilities

LO1

Pure Competition: Characteristics

• Very large numbers of sellers
• Standardized product
• “Price takers”
• Easy entry and exit
• Perfectly elastic demand
• Firm produces as much or little as they want at the price
• Demand graphs as horizontal line
LO2

Average, Total, and Marginal
Revenue
• Average Revenue
• Revenue per unit
• AR = TR/Q = P
• Total Revenue
• TR = P X Q
• Marginal Revenue
• Extra revenue from 1 more unit
• MR = ΔTR/ΔQ
LO3

Average, Total, and Marginal
Revenue
Firm’s
Demand
Schedule
(Average
Revenue)

P

QD

Firm’s
Revenue
Data

TR

MR

0 $131
$0
] $131
1 131 131
] 131
2 131 262
] 131
3 131 393
] 131
4 131 524
] 131
5 131 655
] 131
6 131 786
] 131
7 131 917
] 131
8 131 1048
131
9 131 1179 ]
131
10 131 1310 ]

LO3

TR

D = MR = AR

Profit Maximization: TR–TC
Approach

• Three questions:
• Should

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