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Market structures1
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Market structures1

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    • 1. Market structures 1.Perfect Competition 2. Monopoly 3. Oligopoly 4. Monopolistic Competition
    • 2.
      • Determinants of market structure
        • Number of sellers
        • Nature of the product – homogenous (identical), differentiated?
        • Freedom of entry and exit
        • Control over price
        • Non price Competition
    • 3.
      • Types of profit :
      • Economic profit is Total Revenue less explicit and implicit costs.
      • Accounting profit is total revenue less explicit costs
      • Normal profit is an implicit cost which the opportunity cost for the entrepreneur – the return that he could have earned in the next best alternative.
    • 4. Features of the four market structures
    • 5.
      • Perfect Competition:
        • Free entry and exit to industry
        • Homogenous product – identical - no consumer preference
        • Large number of buyers and sellers – no individual seller can influence price
        • Sellers are price takers – have to accept the market price
        • Perfect information available to buyers and sellers
    • 6. Short Run Equilibrium
      • Since the firm is a price taker, he can sell any quantity at the given price.
      • This implies that his marginal revenue curve is horizontal
      • MR = Price
    • 7. Perfect Competition
      • Short-run equilibrium of the firm
        • Price
          • given by market demand and supply
        • Output
          • where P = MC
        • Profit= revenue - cost
          • possible supernormal profits
    • 8. Short-run equilibrium of industry and firm under perfect competition fig O £ (b) Firm Q (thousands) O (a) Industry P Q (millions) Q e S D P e MC AR D = AR = MR AC AC
    • 9. Short-run shut-down point fig O O (a) Industry P Rs Q (millions) S (b) Firm MC AC Q (thousands) D 2 P 2 AR 2 D 2 = AR 2 = MR 2 AVC
    • 10. Long-run equilibrium under perfect competition fig O O P £ Q (millions) Q L Q (thousands) New firms enter Supernormal profits Profits return to normal (a) Industry (b) Firm S 1 D LRAC P L P 1 S e AR 1 D 1 AR L D L
    • 11. Perfect Competition
      • The long run
        • long-run equilibrium of the firm
          • all supernormal profits competed away
          • LRAC = AC = MC = MR = AR
    • 12. Long-run equilibrium of the firm under perfect competition Rs Q O (SR)AC (SR)MC LRAC AR = MR D L LRAC = (SR)AC = (SR)MC = MR = AR
    • 13. Perfect Competition
      • The long run
        • long-run equilibrium of the firm
          • all supernormal profits competed away
          • LRAC = AC = MC = MR = AR
        • long-run industry supply curve
        • incompatibility of economies of scale with perfect competition
      • Does the firm benefit from operating under perfect competition?

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