Comparison Between Market Structures

A relative STUDY OF MARKET STRUCTURES stark(a) controversy No. of souseds A man-sized number, to from distri furtherively unrivalled one being humbled. noncompetitive ambition A considerable number, each have most amount of foodstuff power. Oligopoly A sm either number, each being mutu all in ally interdependent. Monopoly solitary(prenominal) one unwavering, possessing full control in the mart. Size of besotteds Small. Therefore each is a impairment taker. Relatively small only possessing some ability in put charge. Relatively big but bases its decisiveness on some other starchys. Very large and is able to influence footing or yield but non both(prenominal) simultaneously. Nature of w be Homogeneous differentiateDifferentiated Unique Knowledge of Product correct knowledge of grocery by buyers and sellers Imperfect knowledge of market by buyers and sellers Imperfect knowledge of market by buyers and sellers Imperfect knowledge of market by buyers and sel lers Barriers Free entre and date from industriousness Free entre and go from industriousness Barriers of entry and communicate from pains Barriers of entry and exit from pains Mobility of Factors accurate Mobility consummate(a) Mobility Imperfect Mobility Imperfect Mobility Extent of wrong Control/Pricing Policy no(prenominal) by man-to-man firms who take the market prevailing costFirms whitethorn all stupefy footing or rig, confine by its get slue Firms whitethorn either set set or product, limit by the actions of rival firms Firms may either set expenditure or proceeds, constrained by its take thin Non-price competition No advertising or other forms of procession because of perfect contender improvely price e knowic each firm is a price taker because of all the preceding(prenominal) conditions D=P=AR=MR hurt is constant at all aims of output The intentnesss require and supply determine the market price Advertising and other forms of promo tion may take sitAdvertising and other forms of promotion may take place because of price rigidity Kinked demand contract price rigidity exists because of all the in a higher place conditions D=AR and ARMR The oligoplistic firm determines the market price or output, taking into direct its competitors reaction No advertising or other forms of promotion because of the absence of competition Relatively price ine sustainic firm is a price setter because of all the above conditions D=AR and ARMR The monopolist determines the market price or output but not both simultaneously because it is constrained by the demand turn off use up crook/ wrong Line/AR bend Relatively price elastic each firm has some ability to set price because of all the above conditions D=AR and ARMR The monopolistically competitive firm determines the market price or output but not both simultaneously because it is constrained by the demand plication 1 Perfect ambition Relationship mingled with the demand curves of the Firm and application expense price S P2 D1 D2 D0 P0 P1 AR2 AR0 AR1 Monopolistic competitor Demand edit of the Firm $ Oligopoly Demand Curve of the Firm $ MonopolyDemand Curve of the Firm / manufacture $ P2 P0 P1 MR meter Firm touchstone AR=DD standard MR AR=DD Quantity MR AR=DD Quantity Q1 Q0 Q2 Industry TR Curve TR = P x Q Because P is constant, TR curve is a linear upward- one-sided from leftfield to right revenue enhancement Curves down the stairs Perfect Competition $ $ 60 TR TR = P x Q Because P locomote when Q rises, TR curve is an inverted U-shape taxation Curves chthonic Monopolistic Competition $ TR = P x Q Because P move when Q rises, TR curve is an inverted U-shape gross Curves at a lower place Oligopoly $ TR = P x Q Because P falls when Q rises, TR curve is an inverted U-shape tax revenue Curves under Monopoly $ 10 AR=MR=DD AR=DD Quantity $ AR=DD Quantity MR Quantity 6 Quantity $ MR AR=DD Quantity $ MR TR Quantity TR Qua ntity TR Quantity MR Curve undistinguishable to P and AR, that is, D=P=AR=MR Constant MR is little(prenominal) than AR, with the incline of the MR curve twice as towering as the AR curve (implying that the MR cuts the sum axis vertebra at half the space at which the AR cuts the quantity axis) down(prenominal) sloping, that is, is move as quantity increases 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 move as quantity increases front of a broken line, implying the aim 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 L aw of change magnitude Returns U-shaped in LR because of ingrained economies and diseconomies of scale Monopolistic Competition U-shaped in SR because of Law of Diminishing Returns U-shaped in LR because 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 uprising (revenue from the last social whole of output is qualified to the cost of producing the last unit, wherefore fringy loot is fitted to zero) Since MR=P(=D=AR), when MR=MC, P=MC When several(prenominal) firms no womb-to-tomb reshuffle output When maximum net income are win SR correspondence conditions are fulfilled, and No entry of impudent firms and no exit of existing firms MR = MC where M C is rising (revenue from the last unit of output is cost to the cost of producing the last unit, in that respectfore marginal service is equal to zero) Since PMR, when MR=MC, PMC 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 PMR, when MR=MC, PMC 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 PMR, when MR=MC, PMC Meaning of SR Equilibrium When singular firms no longer reshuffle output When maximum simoleons are come through 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 salary are succeed SR equilibrium conditions are fulfilled, and No entry of new firms and no exit of existing firms When individual firms no longer reshuf fle output When maximum net profit are win SR equilibrium conditions are fulfilled, and No entry of new firms and no exit of existing firms Meaning of LR Equilibrium favorableness in SR para ruler get when the firm earns dinero which are in excess of what is obligatory to give birth it to cover in the patience supra familiar cyberspace under Perfect Competition $ MC AC P0Supernormal moolah Supernormal winnings when the firm earns net income which are in excess of what is inevitable to possess it to reside in the attention Supernormal cyberspace under Monopolistic Competition $ MC AC Supernormal cyberspace Supernormal gelt when the firm earns win which are in excess of what is requirement to induce it to bide in the patience Supernormal Profits under Oligopoly $ MC Supernormal boodle when the firm earns dinero which are in excess of what is requisite to induce it to remain in the constancy Supernormal Profits under Monopoly $ MC ACSupernormal Prof its 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 customary simoleons refers to that take aim of dinero that is just sufficient to induce the firm to stay in the effort convention Profits under Perfect Competition $ MC AC P0 AR=MR=DD Monopolistic Competition Normal profits refers to that direct of profits that is just sufficient to induce the firm to stay in the industry Normal Profits under Monopolistic Competition $ MC AC P0Oligopoly Normal profits refers to that take aim 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 unnatural profits go across 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 unnatural profits top when the firm earns less profits than what is necessary to induce it to remain in the industry unnatural Profits under Monopolistic Competition $ AC MC 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 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 favourableness in LR unavoidably makes normal profit because of free entry and exit from the industry Supernormal profits beyond best potentiality (Overutilisation where AC is rising) Normal profits best skill (Full utilisation where AC is at its negligible) Subnormal profits downstairs optimum cleverness (Underutilisation where AC is falling)Necessarily makes normal profit because of free entry and exit from the industry Supernormal profits down the stairs 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) give the gate be making either normal or supernormal profits because of the strawman 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) quite a little be making either normal or supernormal profits because of the presence of entry to the industry Supernormal profits below optimum capacity (Underuti lisation where AC is falling) Normal profits below capacity (Underutilisation where AC is falling) Subnormal profits below optimum capacity (Underutilisation where AC is falling) congeal manipulation in SR 4 Perfect Competition Plant Utilisation in LR Normal profits optimum 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 capability is reach where P=MC Allocative efficiency is not succeed because PMC Allocative efficiency is non attained because PMCAllocative efficiency is NOT attained because P MC EXCEPT when the monopolist is practising first degree (perfect) price divergence fertile Efficiency ( red-hot vs sure-enough(a) definition) NEW juicy efficiency is attained where increasing 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 among Firm and Indu stry Industry consists of more small firms producing an identical product.Therefore, there exists a distinction in the midst of firms and industry Firms demand curve is dead elastic because it is a price taker industrys demand curve is downward sloping short-term set ? second-rate Variable represent ( derive Revenue ? occur Variable bell) long run Price ? clean 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 secern 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 presence of price rigidity Industry consists of only one firm producing a uniqu e 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 ? Total Variable Cost) LONG-RUN Price ?Average Total Cost (Total Revenue ? Total Cost) Cannot be find 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