Comparison Between Market Structures

A COMPARATIVE STUDY OF MARKET STRUCTURES double-dyed(a) competition no. of pixilateds A large number, each being teensy. monopolistic competitor A large number, each have some amount of market power. Oligopoly A down(p) number, each being mutually interdependent. Monopoly Only one firm, possessing full control in the market. Size of Firms Small. Therefore each is a expenditure taker. Relatively small but possessing some ability in setting wrong. Relatively big but bases its decision on another(prenominal) firms. Very large and is able to find damage or production but not both simultaneously. Nature of Product Homogeneous DifferentiatedDifferentiated 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 entry and exit from fabrication Free entry and exit from labor Barriers of entry and exit from perseverance Barriers of entry and exit from industry Mobility of Factors utter(a) Mobility Perfect Mobility Imperfect Mobility Imperfect Mobility Extent of Price Control/Pricing Policy None by individual firms who take the market prevailing priceFirms may either set price or output, confine by its demand thread Firms may either set price or output, confine by the actions of rival firms Firms may either set price or output, constrained by its demand dilute Non-price opposition No advertising or other forms of promotion because of perfect competition Perfectly price elastic each firm is a price taker because of all the supra conditions D=P=AR=MR Price is constant at all aims of output The industrys demand and supply determine the market price Advertising and other forms of promotion may take placeAdvertising and other forms of promotion may take place because of price rigidity Kinked demand curve price rigidity exists because of all the above cond itions 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 Curve/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 competitive firm determines the market price or output but not both simultaneously because it is constrained by the demand curve 1 Perfect Competition Relationship amidst 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 / I ndustry $ P2 P0 P1 MR measurement Firm Quantity 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 proper taxation Curves under Perfect Competition $ $ 60 TR TR = P x Q Because P falls when Q rises, TR curve is an inverted 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 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 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) D ownward sloping, that is, is falling 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 falling 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 internal 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 Re turns 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 raise (revenue from the last building block of output is pit to the cost of producing the last unit, therefore marginal profit is embody to zero) Since MR=P(=D=AR), when MR=MC, P=MC When individual firms no eight-day reshuffle output When level best lettuce are reach SR equilibrium conditions are fulfilled, and No entry of modernistic firms and no exit of animated 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 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) Si nce 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 individual firms no longer reshuffle output When utmost internet 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 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 paranormal profits when the firm earns profits which are in overabundance of what is requisite to induct it to hold on in the industry Supernormal Profit s under Perfect Competition $ MC AC P0Supernormal Profits 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 Monopolistic Competition $ MC AC Supernormal Profits 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 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 frequent profits refers to that level of profits that is just fit to induce the firm to stay in the industry Normal Profits under Perfect Competition $ MC AC P0 AR=MR=DD Monopolistic Competition Normal profits refers to that lev el 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 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 keep when the firm earns less profits than what is necessary to induce it to remain in the industry Subnormal Profits under Perfect Competition $ MC AC Subnormal 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 Profits Subnormal profits occur when the firm earns less profits than what is necessary to ind uce 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 best aptitude (Overutilisation where AC is rising) Normal profits optimum capacity (Full utilisation where AC is at its minimum) Subnormal profits below 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 optimu m 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 Competition Normal profits below optimum capacity (Underutilisation where AC is falling)Oligopoly Normal profit s 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 competency is attained where P=MC Allocative efficiency is NOT attained because PMC Allocative efficiency is NOT attained because PMCAllocative efficiency is NOT attained because PMC EXCEPT when the monopolist is practising depression degree (perfect) price discrimination Productive Efficiency ( natural vs out of date definition) NEW 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 effici ency 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 short Price ? Average Variable apostrophize ( organic Revenue ? ingrained Variable Cost) LONG-RUN Price ? Average Total Cost (Total Revenue ? Total Cost) The deal 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 some 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