Comparison Between Market Structures

A COMPARATIVE STUDY OF MARKET STRUCTURES entire emulation no. of squargons A large number, each being sm each. noncompetitive rival A large number, each have some amount of market power. Oligopoly A sm nevertheless number, each being mutually interdependent. Monopoly Only one debauched, possessing solely control in the market. Size of Firms Small. Therefore each is a monetary value leaser. Relatively small nevertheless(prenominal) possessing some world power in put monetary value. Relatively big but bases its decision on other firms. really large and is able to influence scathe or fruit but not both simultaneously. Nature of Product Homogeneous identifyDifferentiated Unique Knowledge of Product arrant(a) knowledge of market 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 sellers Barriers Free entering and gnarl from fabrication Free entre and exit from attention Barriers of entry and exit from industry Barriers of entry and exit from industry Mobility of Factors finished Mobility Perfect Mobility Imperfect Mobility Imperfect Mobility Extent of harm Control/Pricing insurance policy None by soul firms who take the market prevailing costFirms may either set terms or widening, constrained by its adopt curl up Firms may either set harm or end product, constrained by the actions of rival firms Firms may either set price or outturn, constrained by its carry curve Non-price argument No publicizing or other forms of promotion because of perfect competition absolutely price e holdic each firm is a price taker because of all the supra conditions D=P=AR=MR Price is constant at all trains of fruit The industrys demand and supply escort the market price Advertising and other forms of promotion may take military postAdvertising and other forms of promotion may take place because of price rigidness Kinked d emand curve price rigidity exists because of all the above conditions D=AR and ARMR The oligoplistic firm determines the market price or output, taking into account its competitors reaction No advertising or other forms of promotion because of the absence of competition Relatively price inelastic 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 curveDemand reduce/Price Line/AR curve Relatively price elastic each firm has some ability to set price because of all the above conditions D=AR and ARMR The monopolistically militant firm determines the market price or output but not both simultaneously because it is constrained by the demand curve 1 Perfect competitor Relationship mingled with the demand curves of the Firm and industry Price Price S P2 D1 D2 D0 P0 P1 AR2 AR0 AR1 noncompetitive Competition Demand Curve of the Firm $ Oligopoly Demand Curve of the Firm $ MonopolyDemand Curve of the Firm / Industry $ P2 P0 P1 MR step Firm step AR=DD Quantity 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-sloping from left to right tax income Curves under Perfect Competition $ $ 60 TR TR = P x Q Because P falls when Q rises, TR curve is an modify U-shape revenue Curves under Monopolistic Competition $ TR = P x Q Because P falls when Q rises, TR curve is an inverted U-shape gross Curves under 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 Quantity TR Quantity MR Curve Identical to P and AR, that is, D=P=AR=MR Constant MR is less than AR, with the gradient of the MR curve twice as eat up as the AR curve (implying that the MR cuts the quantity axi s at half the length at which the AR cuts the quantity axis) Downward sloping, that is, is dropping 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 travel as quantity increases Presence of a broken line, implying the presence 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 essential economies and diseconomies of scale Monopolistic Competition U-shaped in SR because of Law of Diminishing Returns U-shaped in LR because of inborn economies and diseconomies o f scale Oligopoly U-shaped in SR because of Law of Diminishing Returns U-shaped in LR because of inner 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 rising (revenue from the last whole of output is couple to the cost of producing the last unit, in that locationfore bargon(a) gather is contact to zero) Since MR=P(=D=AR), when MR=MC, P=MC When individual firms no longer reshuffle output When maximum pelf are win SR symmetry conditions are fulfilled, and No entry of reinvigorated firms and no exit of subsisting 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 bread 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 importation of SR Equilibrium When individual firms no longer reshuffle output When maximum meshwork are deliver the goods 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 gain 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 meshing 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 super formula sugar when the firm earns pelf which are in special of what is ne cessary to own it to remain in the industry super universal clams under Perfect Competition $ MC AC P0supernormal Profits Supernormal kale when the firm earns net which are in excess of what is necessary to initiate it to remain in the industry Supernormal Profits under Monopolistic Competition $ MC AC Supernormal Profits Supernormal internet when the firm earns boodle which are in excess of what is necessary to become 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 contract 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 radiation diagram profits refers to that level of profits that is just sufficient to realise the firm to retard in the industry usual Profits under Perfect C ompetition $ MC AC P0 AR=MR=DD Monopolistic Competition Normal profits refers to that level of profits that is just sufficient to induce the firm to vex 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 abnormal Profits under Perfect Competition $ MC AC unnatural profits occur when the firm earns less profits than what is necessary to induce it to remain in the industry Subnormal Profits under Monopolistic Competition $ AC MC Subnormal Prof its 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 inevitably makes normal profit because of free entry and exit from the industry Supernormal profits beyond optimal capacity (Overutilisation where AC is rising) Normal profits best capacity (Full utilisation where AC is at its token(prenominal)) Subnormal profits under optimum capacity (Underutilisation where AC is falling)Necessarily makes normal profit because of free entry and exit from 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 presence 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 presence 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 Utilisation in SR 4 Perfect Competition Plant Utilisation in LR Normal profits optimum capacity (Full utilisation where AC is at its minimum) Monopolistic Competitio n 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 faculty is attained where P=MC Allocative capability is NOT attained because PMC Allocative efficiency is NOT attained because PMCAllocative efficiency is NOT attained because PMC EXCEPT when the monopolist is practising first degree (perfect) price discrimination fur-bearing Efficiency (NEW vs OLD definition) NEW successful 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 amid Firm and Industry Industry consists of umpteen small firms producing an identical product.Therefore, there exists a promissory note amongst firms and industry Firms demand curve is perfectly elastic because it is a price taker industrys demand curve is downward sloping short-run Price ? add up variable hail ( innate Revenue ? arrive Variable Cost) 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 presence of price rigidity Industry consists of only one firm producing a unique 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 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