Comparison Between Market Structures

A proportional STUDY OF MARKET STRUCTURES arrant(a) Competition No. of staunchs A grownup number, to to each one one being humiliated. monopolistic Competition A large number, each have some amount of market power. Oligopoly A subaltern number, each being mutually interdependent. Monopoly Only one firm, possessing full control in the market. Size of levels Small. Therefore each is a set taker. Relatively small notwithstanding possessing some top executive in setting exist. Relatively too large but bases its decision on other firms. Very large and is adapted to influence price or yield but not some(prenominal) simultaneously. Nature of Product Homogeneous DifferentiatedDifferentiated Unique companionship of Product Perfect fellowship of market by buyers and sellers unaccented knowledge of market by buyers and sellers blemished knowledge of market by buyers and sellers Imperfect knowledge of market by buyers and sellers Barriers Free compliance and exit from dili gence Free entry and exit from perseverance Barriers of entry and exit from industry Barriers of entry and exit from industry Mobility of Factors Perfect Mobility Perfect Mobility Imperfect Mobility Imperfect Mobility Extent of Price Control/Pricing Policy None by mortal firms who take the market prevailing priceFirms may both set price or outfit, restrain by its shoot dilute Firms may either set price or production signal, constrained by the actions of rival firms Firms may either set price or output, constrained by its crave nose Non-price Competition No advertising or other forms of promotion because of perfect competition Perfectly price pliant each firm is a price taker because of all the above conditions D=P=AR=MR Price is constant at all levels of output The industrys demand and supply determine the market price publicizing and other forms of promotion may take placeAdvertising and other forms of promotion may take place because of price rigidness Kinked de mand rick price inflexibility exists because of all the above conditions D=AR and AR>MR The oligoplistic firm determines the market price or output, winning into account its competitors reaction No advertising or other forms of promotion because of the absence of competition Relatively price inflexible firm is a price setter because of all the above conditions D=AR and AR>MR The monopolist determines the market price or output but not both simultaneously because it is constrained by the demand rationalize beg geld/Price Line/AR deflect Relatively price e expireic each firm has some ability to set price because of all the above conditions D=AR and AR>MR The monopolistically competitive firm determines the market price or output but not both simultaneously because it is constrained by the demand bender 1 Perfect Competition Relationship between the demand curves of the Firm and Industry Price Price S P2 D1 D2 D0 P0 P1 AR2 AR0 AR1 monopolistic Competition Demand Curve of the Firm $ Oligopoly Demand Curve of the Firm $ MonopolyDemand Curve of the Firm / Industry $ P2 P0 P1 MR measuring rod Firm step AR=DD total MR AR=DD sum of money MR AR=DD beat Q1 Q0 Q2 Industry TR Curve TR = P x Q Because P is constant, TR curve is a linear upward- colored from left to slump tax Curves beneath Perfect Competition $ $ 60 TR TR = P x Q Because P falls when Q rises, TR curve is an anatropous U-shape Revenue Curves under noncompetitive Competition $ TR = P x Q Because P falls when Q rises, TR curve is an inverted U-shape Revenue Curves under Oligopoly $ TR = P x Q Because P falls when Q rises, TR curve is an inverted U-shape Revenue Curves under Monopoly $ 10 AR=MR=DD AR=DD amount $ AR=DD Quantity MR Quantity 6 Quantity $ MR AR=DD Quantity $ MR TR Quantity TR Quantity TR Quantity MR Curve Identical to P and AR, that is, D=P=AR=MR Constant MR is slight than AR, with the gradient of the MR curve double as steep as the AR curve (implying that the MR cuts the quantity bloc at half the length at which the AR cuts the quantity axis) downwards lean, that is, is locomote as quantity increases MR is little than AR, with the gradient of the MR curve twice as steep as the AR curve (implying that the MR cuts the quantity axis at half the length at which the AR cuts the quantity axis) downwardly sloping, that is, is travel as quantity increases Presence of a broken line, implying the strawman of price rigidity MR is less than AR, with the gradient of the MR curve twice as steep as the AR curve (implying that the MR cuts the quantity axis at half the length at which the AR cuts the quantity axis) Downward sloping, that is, is falling as quantity increases 2Perfect Competition MC/AC Curves U-shaped in SR because of Law of Diminishing Returns U-shaped in LR because of internal economies and diseconomies of outmatch Monopolistic Competition U-shaped in SR because of Law of Diminishing Returns U-shaped in LR bec ause of internal economies and diseconomies of scale Oligopoly U-shaped in SR because of Law of Diminishing Returns U-shaped in LR because of internal economies and diseconomies of scale Monopoly U-shaped in SR because of Law of Diminishing Returns U-shaped in LR because of internal economies and diseconomies of scaleProfit- maximising Condition MR = MC where MC is wage increase (revenue from the exist unit of output is equate to the cost of producing the last unit, at that placeof fringy return is equal to zero) Since MR=P(=D=AR), when MR=MC, P=MC When private firms no longer reshuffle output When maximum lettuce ar achieve SR equilibrium conditions atomic number 18 fulfilled, and No entry of raw firms and no exit of existing firms MR = MC where MC is rising (revenue from the last unit of output is equal to the cost of producing the last unit, therefore marginal profit is equal to zero) Since P>MR, when MR=MC, P>MC MR = MC where MC is rising (revenue fr om the last unit of output is equal to the cost of producing the last unit, therefore marginal profit is equal to zero) Since P>MR, when MR=MC, P>MC MR = MC where MC is rising (revenue from the last unit of output is equal to the cost of producing the last unit, therefore marginal profit is equal to zero) Since P>MR, when MR=MC, P>MC Meaning of SR Equilibrium When individual firms no longer reshuffle output When maximum salary are deliver the goods SR equilibrium conditions are fulfilled, and No entry of newfound firms and no exit of existing firms When individual firms no longer reshuffle output When maximum scratch are attained SR equilibrium conditions are fulfilled, and No entry of new firms and no exit of existing firms When individual firms no longer reshuffle output When maximum profits are attained SR equilibrium conditions are fulfilled, and No entry of new firms and no exit of existing firms Meaning of LR Equilibrium Profitability in SR paranorm al profits when the firm earns profits which are in excess of what is necessary to incur it to repose in the industry supranormal boodle under Perfect Competition $ MC AC P0 supranormal lolly supernormal profits when the firm earns profits which are in excess of what is necessary to give birth it to remain in the industry paranormal Profits under Monopolistic Competition $ MC AC supranormal Profits supranormal profits when the firm earns profits which are in excess of what is necessary to induce it to remain in the industry Supernormal Profits under Oligopoly $ MC Supernormal profits when the firm earns profits which are in excess of what is necessary to induce it to remain in the industry Supernormal Profits under Monopoly $ MC ACSupernormal Profits AR=MR=DD P0 P0 AC Supernormal Profits P0 AR=DD MR Q0 Quantity Q0 Quantity Q0 MR AR=DD MR Quantity Q0 AR=DD Quantity 3 Perfect Competition Normal profits refers to that level of profits that is just comfortable to induce the firm to go on in the industry Normal Profits under Perfect Competition $ MC AC P0 AR=MR=DD Monopolistic Competition Normal profits refers to that level of profits that is just commensurate to induce the firm to stay in the industry Normal Profits under Monopolistic Competition $ MC AC P0Oligopoly Normal profits refers to that level of profits that is just sufficient to induce the firm to stay in the industry Normal Profits under Oligopoly $ MC AC P0 Monopoly Normal profits refers to that level of profits that is just sufficient to induce the firm to stay in the industry Normal Profits under Monopoly $ MC AC P0 AR=DD MR Q0 Quantity Q0 Quantity Q0 MR AR=DD MR Quantity Q0 AR=DD Quantity subnormal profits occur when the firm earns less profits than what is necessary to induce it to remain in the industry unnatural Profits under Perfect Competition $ MC AC abnormal profits occur when the firm earns less profits than what is necessary to induce it to remain in the industry unnat ural Profits under Monopolistic Competition $ AC MC unnatural Profits subnormal profits occur when the firm earns less profits than what is necessary to induce it to remain in the industry subnormal Profits under Oligopoly $ MC AC Subnormal Profits Subnormal profits occur when the firm earns less profits than what is necessary to induce it to remain in the industry Subnormal Profits under Monopoly $ AC MCSubnormal Profits P0 Subnormal Profits AR=MR=DD P0 P0 P0 AR=DD MR Q0 Quantity Q0 Quantity Q0 MR AR=DD MR Quantity Q0 AR=DD Quantity Profitability in LR Necessarily makes normal profit because of free entry and exit from the industry Supernormal profits beyond optimal competency (Overutilisation where AC is rising) Normal profits optimal force (Full utilisation where AC is at its minimum) Subnormal profits below optimum capableness (Underutilisation where AC is falling)Necessarily makes normal profit because of free entry and exit from the industry Supernormal profits below optimum energy (Underutilisation where AC is falling) Normal profits below competency (Underutilisation where AC is falling) Subnormal profits below optimum capacity (Underutilisation where AC is falling)Can be making either normal or supernormal profits because of the front line of entry to the industry Supernormal profits below optimum capacity (Underutilisation where AC is falling) Normal profits below capacity (Underutilisation where AC is falling) Subnormal profits below optimum capacity (Underutilisation where AC is falling)Can be making either normal or supernormal profits because of the posture of entry to the industry Supernormal profits below optimum capacity (Underutilisation where AC is falling) Normal profits below capacity (Underutilisation where AC is falling) Subnormal profits below optimum capacity (Underutilisation where AC is falling) Plant practice session in SR 4 Perfect Competition Plant economic consumption in LR Normal profits op timum capacity (Full utilisation where AC is at its minimum) Monopolistic Competition Normal profits below optimum capacity (Underutilisation where AC is falling)Oligopoly Normal profits below optimum capacity (Underutilisation where AC is falling) Supernormal profits below optimum capacity (Underutilisation where AC is falling) Monopoly Normal profits below optimum capacity (Underutilisation where AC is falling) Supernormal profits below optimum capacity (Underutilisation where AC is falling) Allocative Efficiency Allocative talent is attained where P=MC Allocative faculty is not attained because P>MC Allocative efficiency is NOT attained because P>MCAllocative efficiency is NOT attained because P>MC EXCEPT when the monopolist is practising prototypical degree (perfect) price discrimination Productive Efficiency ( red-hot vs OLD definition) bleak Productive efficiency is attained where profit-maximising level of output is at the LRAC OLD Productive efficiency is attained where profit-maximising level of output is at the minimum LRAC NEW Productive efficiency is attained where profit-maximising level of output is at the LRAC OLD Productive efficiency is NOT attained because profit maximising level of output is falling LRAC (underutilisation)NEW Productive efficiency is attained where profit-maximising level of output is at the LRAC OLD Productive efficiency is NOT attained because profit maximising level of output is falling LRAC (underutilisation) NEW Productive efficiency is attained where profit-maximising level of output is at the LRAC OLD Productive efficiency is NOT attained because profit maximising level of output is falling LRAC (underutilisation) Distinction between Firm and Industry Industry consists of many small firms producing an identical product.Therefore, there exists a distinction between firms and industry Firms demand curve is perfectly elastic because it is a price taker industrys demand curve is downward sloping sho rt-term Price ? total varying damage ( intact Revenue ? do variable quantity make up) LONG-RUN Price ? Average Total Cost (Total Revenue ? Total Cost) The portion of MC curve that is above the average variable cost Industry consists of many relatively small firms producing differentiated products. Therefore, there exists a distinction between firms and industry Firms demand curve and the industrys demand curve is both downward sloping Industry consists of a few large firms producing differentiated products. Therefore, there exists a distinction between firms and industry Firms demand curve and the industrys demand curve is kinked implying the heraldic bearing of price rigidity Industry consists of only one firm producing a alone(predicate) product. Therefore, there exists NO distinction between firms and industry Firms demand curve is the industrys demand curve and it is downward sloping Shut-down condition SHORT-RUN Price ? Average Variable Cost (Total Revenue ? T otal Variable Cost) LONG-RUN Price ?Average Total Cost (Total Revenue ? Total Cost) Cannot be determined because there is no unique price to a quantity and viceversa SHORT-RUN Price ? Average Variable Cost (Total Revenue ? Total Variable Cost) LONG-RUN Price ? Average Total Cost (Total Revenue ? Total Cost) Cannot be determined because of the presence of price rigidity SHORT-RUN Price ? Average Variable Cost (Total Revenue ? Total Variable Cost) LONG-RUN Price ? Average Total Cost (Total Revenue ? Total Cost) Cannot be determined because there is no unique price to a quantity and viceversa Supply Curve in SR 5