Market structure-Alaleh Mani
This document discusses the characteristics of perfect competition in markets, including many buyers and sellers, identical products, free entry and exit into the market, and all participants having perfect information. It describes the total revenue and marginal revenue curves under perfect competition and the key short-run and long-run decisions firms must make to maximize profits. These include whether to operate temporarily or quit, how much to produce, whether to change plant size, and whether to stay in or exit the industry. The potential outcomes in the short-run are breaking even, abnormal profits, or economic losses. In the long-run, firms will enter with abnormal profits and exit with losses, potentially changing output levels or adjusting plant sizes. Market equilibrium occurs where demand equals
Market structure-Alaleh Mani
- 2. Perfect Competition Many Sellers and Many Buyers Identical Products, no unique characteristic No restriction to enter All are well informed of prices Older firms have no advantages to new ones Minimum Efficient Scale is relatively low= portion of demand Price taker
- 4. Perfect competition Total Revenue TR is linear and pass the origin (0,0)
- 5. Perfect Competition Decision 4 key decision to maximize the profit 2 Short -run Decision: Given that firms plant size and No of competitors are fixed: 1. Quit temporary or produce 2. How to produce 2 Long run Decision: Given that firms plant size and No of competitors are variable: 1. Change the size of plant 2. Stay or quit
- 6. Break Even Points= = zero economic pro MC MR MC=MR Break Even Points= zero economic profit
- 7. Three Possible Outcome in Short-run Break Even Abnormal Profit Close to long term Price
- 8. Firm Industry Short Run Supply Curve Firms survive the fixed cost or economic loss in short run Indifferente between producing 0 and Q1
- 9. Market Equilibrium InShort Run there is only demand changes D2 D D3
- 10. Long Run Adjustment 1 Entry (in abnormal profit) and Exit is a respond of firms to economic loss or profit taste and Technology Decreasing demand of paper ,increasing microwave utensils (CFA 2009)-quantity of Industry increase but individual q decrease and VSVS ATC
- 11. Long Run Adjustment 2 Changing Plant Size is to minimize the costs for gaining more profit or escape from loss. Due to taste and Technology Equilibrium rarely happens Scale back or downsizing
- 12. External Economy and External Diseconomy Long Run supply Curve in Competition market: LS 3 LS LS D0 D2