Download - Market structure-Alaleh Mani
Market StructurePerfect CompetitionMicroeconomic Foundation Alaleh Mani. Eng.
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
Competition Demand and Supply
Perfect competition Total Revenue
TR is linear and pass the origin (0,0)
Perfect Competition Decision 4 key decision to maximize the profit
2 Short -run Decision: Given that firm’s plant size and No of competitors
are fixed:1. Quit temporary or produce 2. How to produce
2 Long – run Decision:Given that firm’s plant size and No of competitors are variable:
1. Change the size of plant2. Stay or quit
Break Even Points= zero economic profit
MC=MR
Break Even Points= = zero economic profit
MR
MC
Three Possible Outcome in Short-run
Break EvenClose to long term Price
Abnormal Profit
Short Run Supply Curve
Firms survive the fixed cost or economic loss in short runIndifferente between producing 0 and Q1
Firm Industry
Market Equilibrium In Short Run there is only demand
changes
DD3
D2
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
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
External Economy and External Diseconomy
Long Run supply Curve in Competition market:
LSExternal Diseconomy
External Economy
LS
LS
D0 D21
2
3
3
3