This document discusses different market structures including imperfect competition, monopoly, and perfect competition. It provides details on pure monopoly, including how a monopolist determines price and output by setting marginal revenue equal to marginal cost. The document also discusses barriers to entry for monopolies and natural monopolies where large-scale production allows for lower costs. Government regulation of natural monopolies is also mentioned.
This document provides an outline on monopolistic competition and oligopoly. It begins by explaining where monopolistic competition fits between perfect competition and monopoly. It then discusses the assumptions and characteristics of monopolistic competition in both the short run and long run, including excess capacity, product differentiation, and efficiency. The document next covers the assumptions and concentration ratios used to define oligopoly markets. Finally, it summarizes two models used to analyze oligopoly - cartel theory and game theory, using the prisoner's dilemma example.
The document summarizes the key concepts of perfect competition in the short run and long run. In the short run, firms take the market price as given and produce where marginal cost equals marginal revenue to maximize profits. In the long run, if firms earn profits, more will enter the industry, increasing supply and driving prices down until profits are zero and the industry reaches long run equilibrium.
This document provides an overview of monopoly as a market structure. It defines monopoly and barriers to entry. It then examines monopoly in the short-run and long-run, including profit maximization where marginal revenue equals marginal cost. The document discusses the advantages of monopoly in terms of lower costs from economies of scale but also the disadvantages, including inefficient allocation of resources and deadweight loss compared to perfect competition. It concludes by introducing the concept of price discriminating monopolies.
Session 10 firms in competitive markets May Primadani
A perfectly competitive market has many small firms, identical products, and free entry and exit. Each firm is a price taker and maximizes profits by producing where marginal revenue equals marginal cost. In the short run, firms will shut down if price is below average variable cost, while in the long run firms will exit if price is below average total cost. Market supply results from the aggregation of individual firm supplies. In the long run, entry and exit of firms drives the market to equilibrium with zero profits.
In a perfectly competitive market:
- Many buyers and sellers exist
- Firms are price takers and the actions of any single firm do not impact the market price
- In the long run, firms will enter or exit the market until price equals minimum average total cost and economic profit is zero.
Perfect competition is characterized by many small firms, homogeneous products, perfect information and free entry and exit. Under perfect competition in the short-run, firms are price takers and maximize profits by producing where marginal revenue equals marginal cost. In long-run equilibrium, firms earn zero economic profit as entry and exit cause supply to equal minimum average total cost. Perfect competition leads to productive and allocative efficiency.
This document summarizes key concepts about firms in competitive markets from Chapter 14 of Mankiw et al.'s Principles of Microeconomics. It discusses that a competitive market has many buyers and sellers of identical goods, where each takes prices as given. Firms aim to maximize profits by producing where marginal revenue equals marginal cost. A firm will shut down temporarily if price is below average variable cost and exit the market completely if price is below average total cost in the long run. The portion of the marginal cost curve above average variable cost represents a competitive firm's short-run supply curve.
1. The document discusses competitive markets and how firms make production decisions within them. It uses the examples of a local gas station and water company to illustrate the differences between competitive and non-competitive markets.
2. A competitive market is defined as having many small buyers and sellers, as well as goods/services that are essentially identical. In such a market, no single actor can influence prices. Firms are price takers rather than price makers.
3. The chapter analyzes how competitive firms maximize profits by equating their marginal revenue with their marginal costs of production. Total revenue for a competitive firm is determined by market price multiplied by quantity sold. Both average and marginal revenue for a competitive firm equal the market price.
This document provides an outline on monopolistic competition and oligopoly. It begins by explaining where monopolistic competition fits between perfect competition and monopoly. It then discusses the assumptions and characteristics of monopolistic competition in both the short run and long run, including excess capacity, product differentiation, and efficiency. The document next covers the assumptions and concentration ratios used to define oligopoly markets. Finally, it summarizes two models used to analyze oligopoly - cartel theory and game theory, using the prisoner's dilemma example.
The document summarizes the key concepts of perfect competition in the short run and long run. In the short run, firms take the market price as given and produce where marginal cost equals marginal revenue to maximize profits. In the long run, if firms earn profits, more will enter the industry, increasing supply and driving prices down until profits are zero and the industry reaches long run equilibrium.
This document provides an overview of monopoly as a market structure. It defines monopoly and barriers to entry. It then examines monopoly in the short-run and long-run, including profit maximization where marginal revenue equals marginal cost. The document discusses the advantages of monopoly in terms of lower costs from economies of scale but also the disadvantages, including inefficient allocation of resources and deadweight loss compared to perfect competition. It concludes by introducing the concept of price discriminating monopolies.
Session 10 firms in competitive markets May Primadani
A perfectly competitive market has many small firms, identical products, and free entry and exit. Each firm is a price taker and maximizes profits by producing where marginal revenue equals marginal cost. In the short run, firms will shut down if price is below average variable cost, while in the long run firms will exit if price is below average total cost. Market supply results from the aggregation of individual firm supplies. In the long run, entry and exit of firms drives the market to equilibrium with zero profits.
In a perfectly competitive market:
- Many buyers and sellers exist
- Firms are price takers and the actions of any single firm do not impact the market price
- In the long run, firms will enter or exit the market until price equals minimum average total cost and economic profit is zero.
Perfect competition is characterized by many small firms, homogeneous products, perfect information and free entry and exit. Under perfect competition in the short-run, firms are price takers and maximize profits by producing where marginal revenue equals marginal cost. In long-run equilibrium, firms earn zero economic profit as entry and exit cause supply to equal minimum average total cost. Perfect competition leads to productive and allocative efficiency.
This document summarizes key concepts about firms in competitive markets from Chapter 14 of Mankiw et al.'s Principles of Microeconomics. It discusses that a competitive market has many buyers and sellers of identical goods, where each takes prices as given. Firms aim to maximize profits by producing where marginal revenue equals marginal cost. A firm will shut down temporarily if price is below average variable cost and exit the market completely if price is below average total cost in the long run. The portion of the marginal cost curve above average variable cost represents a competitive firm's short-run supply curve.
1. The document discusses competitive markets and how firms make production decisions within them. It uses the examples of a local gas station and water company to illustrate the differences between competitive and non-competitive markets.
2. A competitive market is defined as having many small buyers and sellers, as well as goods/services that are essentially identical. In such a market, no single actor can influence prices. Firms are price takers rather than price makers.
3. The chapter analyzes how competitive firms maximize profits by equating their marginal revenue with their marginal costs of production. Total revenue for a competitive firm is determined by market price multiplied by quantity sold. Both average and marginal revenue for a competitive firm equal the market price.
The document discusses the characteristics and behavior of firms in a perfectly competitive market. It explains that in the short run, a competitive firm will shut down if price is below average variable cost, while in the long run it will exit the market if price is below average total cost. The firm's marginal cost curve represents its supply curve. The market supply curve is determined by the summation of individual firms' supply. In the long run, free entry and exit will drive profits to zero.
This presentation basically tells how the firm makes decisions in a competitive market. To make concepts here more understable, I have prepared graphs and mathematical equations.
The document defines and classifies markets based on area, time, competition, function, commodity, and legality. It also discusses different market structures including perfect competition, imperfect competition, monopoly, and oligopoly. Under each structure, it examines firm behavior and equilibrium in both the short run and long run. In perfect competition, firms are price takers and maximize profits where MR=MC. Imperfect structures feature product differentiation and few firms. Monopolies and oligopolies have strategic interdependence between few dominant sellers.
Firms in competitive markets are price takers and maximize profits by producing where marginal revenue equals marginal cost. In the short run, a competitive firm's supply curve is its marginal cost curve. In the long run, firms will enter or exit the market to earn normal profits when price equals average total cost. If demand increases in the short run, price and quantity rise as firms earn profits. In the long run, entry of new firms causes supply to increase, price and profits to fall back to normal.
The document discusses the characteristics and behavior of firms in a perfectly competitive market. It defines a competitive market as having many small firms and buyers, homogeneous products, and free entry and exit. In the short run, individual firms maximize profits by producing where marginal revenue equals marginal cost. In the long run, firms enter and exit the market until price equals minimum average total cost and profits are zero. The market supply curve is determined by the marginal cost curves of individual firms.
The key characteristics of perfect competition are:
1) Many small firms
2) Homogeneous (identical) products
3) Free entry and exit from the market
4) Price-taking behavior
The correct answer is b. Perfect competition is characterized by homogeneous (identical) products, not a great variety of different products.
This document discusses monopolies and monopoly power. It defines a monopoly as a sole seller in a market that faces a downward-sloping demand curve. Monopolies maximize profits by producing where marginal cost equals marginal revenue. Unlike competitive firms, monopolies set price above marginal cost, resulting in deadweight loss. Governments address monopoly power through antitrust laws, price regulation, or public ownership.
In a perfectly competitive market, there are many small firms producing identical goods with easy entry and exit. Each firm is a price taker, unable to influence the market price. In the short run, a firm will operate at the quantity where marginal revenue equals marginal cost to maximize profits. This can result in either economic profits or losses. In the long run, if there are economic profits, more firms will enter the market, driving the price down until profits reach zero. If there are economic losses, firms will exit until the price rises and losses become zero, reaching long run equilibrium with normal profits.
The document discusses market structure and perfect competition. It defines market structure as considering the number of firms, nature of products, degree of monopoly power, and other factors. Economists group markets into four structures: pure competition, monopolistic competition, oligopoly, and pure monopoly. The document then focuses on defining pure competition, including that it involves many small firms, standardized products, firms being price takers, and free entry and exit. It also discusses the demand, costs, revenues, and equilibrium outcomes for competitive firms.
A competitive market has many small firms that produce identical goods, with free entry and exit. Each firm is a price taker and maximizes profits by producing where marginal revenue equals marginal cost. The competitive firm's supply curve is its marginal cost curve above average variable cost in the short run and above average total cost in the long run. Market supply is the sum of individual firm supplies. In the long run, entry and exit drive the market to equilibrium with price equal to minimum average total cost and zero profits.
Perfectly Competitive Market and Monopoly Market StructureKhemraj Subedi
The document discusses market structure and product pricing under different market conditions. It begins by defining key concepts such as perfect competition, monopoly, and social cost. It then describes the characteristics and price determination process in perfectly competitive markets. It explains how firms determine short-run and long-run equilibrium under perfect competition. Next, it discusses monopoly markets, including their characteristics and how a monopolistic firm determines equilibrium in the short-run and long-run. Finally, it covers the concept of social cost and how the social cost of monopoly arises from the deadweight loss of economic surplus.
I do not have enough information to determine if any of the options constitute price discrimination. Price discrimination refers to a company charging different prices to different customers for the same good or service.
1. The document explains the long-run equilibrium for a monopoly, including how changes in demand and supply impact the market structure.
2. It discusses three scenarios for a monopoly making supernormal profits: an increase in demand increases output and profits; an increase in costs decreases output and profits; and an increase in fixed costs eliminates supernormal profits.
3. For each scenario, the document uses diagrams to show how the relevant curves shift and how the monopoly should adjust its output level to maximize profits.
This document discusses perfect competition in the long run. It provides two scenarios to analyze how a perfectly competitive firm, Joe the catfish farmer, would respond to a decline in prices. If prices fell to $71/unit, Joe should shut down his business as it would be cheaper than producing at a loss. However, if prices only fell to $81/unit, Joe should continue operating in the short run to minimize his losses until prices potentially increase. The document also discusses how, in perfect competition, the constant entry and exit of firms in response to profits and losses drives prices toward the lowest point on the average total cost curve in the long run.
This document discusses the characteristics and behavior of firms in perfectly competitive markets. It provides examples and diagrams to illustrate key concepts such as:
- Firms are price-takers and will shut down production in the short-run if price falls below average variable cost.
- In the long-run, firms will exit the market entirely if price falls below average total cost or enter the market if price exceeds average total cost.
- A firm will produce the quantity that maximizes its profit, where marginal revenue equals marginal cost.
The document discusses product and factor markets. It defines a product market as an arrangement for buying and selling commodities, such as cotton, rice, and gold markets. A factor market involves transactions of factors of production like labor, land, and capital. The document also discusses different types of markets based on criteria like area, nature of transactions, volume of business, and market structure. It provides details on perfect competition, including characteristics like many buyers and sellers, homogeneous products, free entry and exit. Firms in perfect competition are price takers and maximize profits by producing where marginal revenue equals marginal cost.
1. Firms choose their output level to maximize profits by producing where marginal revenue equals marginal cost.
2. For a price-taking firm, marginal revenue equals the market price. The firm will produce the quantity where price equals marginal cost.
3. A firm will shut down production if the market price falls below the minimum of its average variable cost curve because at those prices, the firm cannot cover its variable costs.
This document defines different types of market structures and provides examples and key features of each. It discusses perfect competition, monopoly, monopolistic competition, and oligopoly. For each market structure, it outlines the short run and long run price and output determinations, including situations where firms make economic profits, normal profits, or losses. It also describes concepts like price discrimination and kinked demand curves that are characteristics of some non-competitive market structures.
1) The document discusses the characteristics and behavior of firms operating in perfectly competitive markets. It addresses factors like revenue, costs, and profit maximization.
2) A competitive firm is a price taker and will produce at the quantity where marginal revenue equals marginal cost, as this maximizes profits.
3) The marginal cost curve represents the firm's supply curve - at a higher price, the profit-maximizing quantity supplied increases as costs are covered at a greater output level.
The document discusses monopolies and imperfect competition. It defines monopolies as markets with a single seller and high barriers to entry. Monopolies are inefficient as they produce less output and charge higher prices than would occur under perfect competition. This results in deadweight loss to society. The government may regulate monopolies through price ceilings to increase output and efficiency. Price discrimination is also discussed, which is when a firm charges different prices to different groups of consumers to maximize profits.
This chapter discusses perfect competition and profit maximization in competitive markets. It contains the following key points:
1. Under perfect competition, there are many small firms and buyers/sellers, homogeneous products, free entry and exit, and perfect information. Firms are price takers and maximize profits by producing where marginal revenue equals marginal cost.
2. In the short run, firms will shut down if price falls below average variable cost or operate at a loss if price is between average variable and average total cost. In the long run, zero economic profits are achieved through free entry and exit of firms.
3. External changes like shifting demand curves or new technology can impact market equilibrium price and quantity in both the
This chapter discusses perfect competition and profit maximization in perfect competition. It contains the following key points:
1. Under perfect competition, there are many small firms and buyers/sellers, homogeneous products, free entry and exit, and perfect information. Firms are price takers and maximize profits by producing where MR=MC.
2. In the short run, firms will shut down if P<AVC or operate to minimize losses if ATC>P>AVC. In the long run, zero economic profits are achieved through free entry and exit of firms.
3. External changes like shifting demand curves or new technology can impact market equilibrium prices and quantities in the short and long run through adjustments to
The document discusses the characteristics and behavior of firms in a perfectly competitive market. It explains that in the short run, a competitive firm will shut down if price is below average variable cost, while in the long run it will exit the market if price is below average total cost. The firm's marginal cost curve represents its supply curve. The market supply curve is determined by the summation of individual firms' supply. In the long run, free entry and exit will drive profits to zero.
This presentation basically tells how the firm makes decisions in a competitive market. To make concepts here more understable, I have prepared graphs and mathematical equations.
The document defines and classifies markets based on area, time, competition, function, commodity, and legality. It also discusses different market structures including perfect competition, imperfect competition, monopoly, and oligopoly. Under each structure, it examines firm behavior and equilibrium in both the short run and long run. In perfect competition, firms are price takers and maximize profits where MR=MC. Imperfect structures feature product differentiation and few firms. Monopolies and oligopolies have strategic interdependence between few dominant sellers.
Firms in competitive markets are price takers and maximize profits by producing where marginal revenue equals marginal cost. In the short run, a competitive firm's supply curve is its marginal cost curve. In the long run, firms will enter or exit the market to earn normal profits when price equals average total cost. If demand increases in the short run, price and quantity rise as firms earn profits. In the long run, entry of new firms causes supply to increase, price and profits to fall back to normal.
The document discusses the characteristics and behavior of firms in a perfectly competitive market. It defines a competitive market as having many small firms and buyers, homogeneous products, and free entry and exit. In the short run, individual firms maximize profits by producing where marginal revenue equals marginal cost. In the long run, firms enter and exit the market until price equals minimum average total cost and profits are zero. The market supply curve is determined by the marginal cost curves of individual firms.
The key characteristics of perfect competition are:
1) Many small firms
2) Homogeneous (identical) products
3) Free entry and exit from the market
4) Price-taking behavior
The correct answer is b. Perfect competition is characterized by homogeneous (identical) products, not a great variety of different products.
This document discusses monopolies and monopoly power. It defines a monopoly as a sole seller in a market that faces a downward-sloping demand curve. Monopolies maximize profits by producing where marginal cost equals marginal revenue. Unlike competitive firms, monopolies set price above marginal cost, resulting in deadweight loss. Governments address monopoly power through antitrust laws, price regulation, or public ownership.
In a perfectly competitive market, there are many small firms producing identical goods with easy entry and exit. Each firm is a price taker, unable to influence the market price. In the short run, a firm will operate at the quantity where marginal revenue equals marginal cost to maximize profits. This can result in either economic profits or losses. In the long run, if there are economic profits, more firms will enter the market, driving the price down until profits reach zero. If there are economic losses, firms will exit until the price rises and losses become zero, reaching long run equilibrium with normal profits.
The document discusses market structure and perfect competition. It defines market structure as considering the number of firms, nature of products, degree of monopoly power, and other factors. Economists group markets into four structures: pure competition, monopolistic competition, oligopoly, and pure monopoly. The document then focuses on defining pure competition, including that it involves many small firms, standardized products, firms being price takers, and free entry and exit. It also discusses the demand, costs, revenues, and equilibrium outcomes for competitive firms.
A competitive market has many small firms that produce identical goods, with free entry and exit. Each firm is a price taker and maximizes profits by producing where marginal revenue equals marginal cost. The competitive firm's supply curve is its marginal cost curve above average variable cost in the short run and above average total cost in the long run. Market supply is the sum of individual firm supplies. In the long run, entry and exit drive the market to equilibrium with price equal to minimum average total cost and zero profits.
Perfectly Competitive Market and Monopoly Market StructureKhemraj Subedi
The document discusses market structure and product pricing under different market conditions. It begins by defining key concepts such as perfect competition, monopoly, and social cost. It then describes the characteristics and price determination process in perfectly competitive markets. It explains how firms determine short-run and long-run equilibrium under perfect competition. Next, it discusses monopoly markets, including their characteristics and how a monopolistic firm determines equilibrium in the short-run and long-run. Finally, it covers the concept of social cost and how the social cost of monopoly arises from the deadweight loss of economic surplus.
I do not have enough information to determine if any of the options constitute price discrimination. Price discrimination refers to a company charging different prices to different customers for the same good or service.
1. The document explains the long-run equilibrium for a monopoly, including how changes in demand and supply impact the market structure.
2. It discusses three scenarios for a monopoly making supernormal profits: an increase in demand increases output and profits; an increase in costs decreases output and profits; and an increase in fixed costs eliminates supernormal profits.
3. For each scenario, the document uses diagrams to show how the relevant curves shift and how the monopoly should adjust its output level to maximize profits.
This document discusses perfect competition in the long run. It provides two scenarios to analyze how a perfectly competitive firm, Joe the catfish farmer, would respond to a decline in prices. If prices fell to $71/unit, Joe should shut down his business as it would be cheaper than producing at a loss. However, if prices only fell to $81/unit, Joe should continue operating in the short run to minimize his losses until prices potentially increase. The document also discusses how, in perfect competition, the constant entry and exit of firms in response to profits and losses drives prices toward the lowest point on the average total cost curve in the long run.
This document discusses the characteristics and behavior of firms in perfectly competitive markets. It provides examples and diagrams to illustrate key concepts such as:
- Firms are price-takers and will shut down production in the short-run if price falls below average variable cost.
- In the long-run, firms will exit the market entirely if price falls below average total cost or enter the market if price exceeds average total cost.
- A firm will produce the quantity that maximizes its profit, where marginal revenue equals marginal cost.
The document discusses product and factor markets. It defines a product market as an arrangement for buying and selling commodities, such as cotton, rice, and gold markets. A factor market involves transactions of factors of production like labor, land, and capital. The document also discusses different types of markets based on criteria like area, nature of transactions, volume of business, and market structure. It provides details on perfect competition, including characteristics like many buyers and sellers, homogeneous products, free entry and exit. Firms in perfect competition are price takers and maximize profits by producing where marginal revenue equals marginal cost.
1. Firms choose their output level to maximize profits by producing where marginal revenue equals marginal cost.
2. For a price-taking firm, marginal revenue equals the market price. The firm will produce the quantity where price equals marginal cost.
3. A firm will shut down production if the market price falls below the minimum of its average variable cost curve because at those prices, the firm cannot cover its variable costs.
This document defines different types of market structures and provides examples and key features of each. It discusses perfect competition, monopoly, monopolistic competition, and oligopoly. For each market structure, it outlines the short run and long run price and output determinations, including situations where firms make economic profits, normal profits, or losses. It also describes concepts like price discrimination and kinked demand curves that are characteristics of some non-competitive market structures.
1) The document discusses the characteristics and behavior of firms operating in perfectly competitive markets. It addresses factors like revenue, costs, and profit maximization.
2) A competitive firm is a price taker and will produce at the quantity where marginal revenue equals marginal cost, as this maximizes profits.
3) The marginal cost curve represents the firm's supply curve - at a higher price, the profit-maximizing quantity supplied increases as costs are covered at a greater output level.
The document discusses monopolies and imperfect competition. It defines monopolies as markets with a single seller and high barriers to entry. Monopolies are inefficient as they produce less output and charge higher prices than would occur under perfect competition. This results in deadweight loss to society. The government may regulate monopolies through price ceilings to increase output and efficiency. Price discrimination is also discussed, which is when a firm charges different prices to different groups of consumers to maximize profits.
This chapter discusses perfect competition and profit maximization in competitive markets. It contains the following key points:
1. Under perfect competition, there are many small firms and buyers/sellers, homogeneous products, free entry and exit, and perfect information. Firms are price takers and maximize profits by producing where marginal revenue equals marginal cost.
2. In the short run, firms will shut down if price falls below average variable cost or operate at a loss if price is between average variable and average total cost. In the long run, zero economic profits are achieved through free entry and exit of firms.
3. External changes like shifting demand curves or new technology can impact market equilibrium price and quantity in both the
This chapter discusses perfect competition and profit maximization in perfect competition. It contains the following key points:
1. Under perfect competition, there are many small firms and buyers/sellers, homogeneous products, free entry and exit, and perfect information. Firms are price takers and maximize profits by producing where MR=MC.
2. In the short run, firms will shut down if P<AVC or operate to minimize losses if ATC>P>AVC. In the long run, zero economic profits are achieved through free entry and exit of firms.
3. External changes like shifting demand curves or new technology can impact market equilibrium prices and quantities in the short and long run through adjustments to
The document discusses market structures and perfect competition. It defines perfect competition as a market with many small firms, homogeneous products, firms that are price takers, and easy entry and exit. Under perfect competition, firms are price takers and produce where marginal revenue equals marginal cost to maximize profits. In the long run, perfect competition leads to normal profits as firms enter and exit the market.
This document provides an overview of perfect competition (PC) or volmaakte mededinging (VM) as presented in Chapter 12. It discusses the prerequisites for PC, demand and equilibrium conditions including profit maximization. Graphs are presented to illustrate total revenue, marginal revenue, average revenue and equilibrium according to total revenue and total cost, marginal revenue and marginal cost. The supply at the market and firm level and long-run equilibrium of a PC firm are also covered. Outcomes addressed include explaining prerequisites, demand curves, and equilibrium in the short-run and long-run. Key concepts such as total, average and marginal are also defined. Profit maximization occurs where marginal revenue equals marginal cost. In the long-
Monopolistic competition is characterized by many small sellers offering differentiated products. Entry and exit of firms is easy in the short run. Firms practice non-price competition through product differentiation and branding. In the short run, firms maximize profits where marginal revenue equals marginal cost. In the long run, firms earn only normal profits as barriers to entry are low, attracting new entrants. While prices are higher than perfect competition, consumers benefit from variety.
The document discusses FERC's Standard Market Design NOPR. It provides background on economic theory related to competitive markets and natural monopolies. It outlines the history of energy regulation in the United States, including key regulatory events and shifts towards deregulation. It also describes FERC orders that have opened up electricity transmission to promote more competitive wholesale electricity markets.
This document discusses monopoly and monopoly power. It begins by reviewing perfect competition and then defines monopoly as a market with one seller and many buyers of a unique product where there are barriers to entry. A monopolist maximizes profits by producing where marginal revenue equals marginal cost. The document provides examples of how a monopolist determines output and price. It also discusses how a monopolist may respond to shifts in demand and the effects of taxes. The document notes that multi-plant firms will equalize marginal costs across plants. While true monopoly is rare, oligopolistic markets can exhibit monopoly power if firms have downward sloping demand curves. The Lerner Index is introduced as a way to measure monopoly power.
The document summarizes key concepts relating to firms operating in competitive markets including:
- The four basic market types are perfect competition, monopolistic competition, oligopoly, and monopoly.
- For a competitive firm, marginal revenue equals price since each additional unit sold does not impact the market price.
- A competitive firm will produce the quantity where marginal revenue equals marginal cost to maximize profits.
- In the short-run, a competitive firm will shut down if price falls below average variable cost. In the long-run, the firm will exit the market if price falls below average total cost.
Perfect competition is characterized by many small firms producing identical products with no barriers to entry or exit, perfect information, and price-taking behavior. Market price is determined by the intersection of total industry supply and demand. In the short run, firms maximize profits by producing where marginal revenue equals marginal cost. In long run equilibrium, firms earn only normal profits and produce where price equals minimum average total cost.
Oligopoly is a market structure with few sellers influencing market price. Firms in an oligopoly are interdependent since the actions of one firm affect others' profits. This interdependence can be modeled as a prisoner's dilemma game where each firm is incentivized to increase output for higher profits, but overall profits decrease if all firms do so. Cartels like OPEC aim to coordinate production quotas to influence price but members often cheat for greater individual profits, requiring enforcement to maintain cooperation.
Oligopoly is a market structure with few sellers influencing market price. Firms in an oligopoly are interdependent and must consider competitors' actions when setting output and prices. The duopoly game illustrates how each firm has an incentive to increase output for higher profits, but overall profits decrease when both firms do so, similar to the prisoners' dilemma. OPEC acts as a petroleum cartel by setting output quotas but faces incentives to cheat on quotas for increased short-term profits.
Oligopoly is a market structure with few sellers influencing market price. Firms in an oligopoly are interdependent since the actions of one firm affect others' profits. This interdependence can be modeled as a prisoner's dilemma game where each firm is incentivized to increase output for higher profits, but overall profits decrease if all firms do so. Cartels like OPEC aim to coordinate production quotas to influence price but members often cheat for greater individual profits, requiring enforcement to maintain cooperation.
The interconnected characteristics of a market, such as the number and relative strength of buyers and sellers and degree of collusion among them, level and forms of competition, extent of product differentiation, and ease of entry into and exit from the market.Four basic types of market structure are (1) Perfect competition: many buyers and sellers, none being able to influence prices. (2) Oligopoly: several large sellers who have some control over the prices. (3) Monopoly: single seller with considerable control over supply and prices. (4) Monopsony: single buyer with considerable control over demand and prices.
This document discusses the behavior of competitive firms in both the short run and long run. It begins by defining key concepts for competitive markets like price taking firms and perfect competition. It then explains how competitive firms determine optimal output and shutdown decisions in the short run by maximizing profits where marginal revenue equals marginal cost. The document also discusses market supply curves for competitive industries and how taxes impact equilibrium. Finally, it covers long-run decisions for competitive firms regarding optimal output levels and shutdown points based on long-run costs.
Perfect competition is an ideal market structure where many small firms produce identical goods, there are no barriers to entry or exit, and both buyers and sellers have perfect information. Under perfect competition in the long run, firms earn zero economic profit and both allocative and productive efficiency are achieved as price equals marginal cost and firms produce at minimum average total cost.
This document provides graphical analysis of various market structures including perfect competition, monopoly, monopolistic competition, and oligopoly. It includes graphs showing:
1) Short-run equilibrium of a perfectly competitive firm that is earning profits or minimizing losses based on the intersection of marginal revenue and marginal cost.
2) Demand, marginal revenue, and total revenue curves facing a pure monopolist.
3) Profit maximization and loss minimization positions of a pure monopolist based on where price is above or below average cost.
4) Short-run profits or losses and long-run equilibrium under monopolistic competition based on the intersection of marginal revenue and marginal cost.
5) Various pricing situations that
Oligopoly is a market structure with a small number of firms that produce either homogeneous or differentiated products. These firms must consider how their actions will affect competitors due to interdependence. There are substantial barriers to entry in oligopolistic markets. Firms may collude to act like a monopoly and earn profits, or they may compete and drive prices down to zero profits. However, collusion is difficult to maintain because firms have an incentive to secretly cut prices. Oligopolistic markets can involve price leadership or operate according to Sweezy's kinked demand curve model, which explains price rigidity. Concentration ratios and the Herfindahl index measure the degree of concentration in an industry. Mergers are evaluated based on
This document provides an overview of perfect competition, including:
1) The key characteristics of a perfectly competitive market structure with many small firms, standardized products, no barriers to entry or exit, and price-taking behavior.
2) How individual firms operate as price-takers in both the short-run and long-run, facing a perfectly elastic demand curve set by the market price.
3) The process by which perfect competition leads to zero economic profits in the long-run through the entry and exit of firms in response to changes in market conditions.
1) A perfectly competitive firm is a price taker and will produce the quantity where marginal revenue equals marginal cost to maximize profits.
2) In the short run, if price is below average variable cost the firm will shut down, and if below average total cost the firm will exit the market in the long run.
3) The market supply curve is determined by the marginal cost curves of all firms, and will be horizontal at the minimum of average total cost in the long run equilibrium with free entry and exit.
This chapter discusses international transactions and exchange rates. It introduces the balance of payments, which records international financial transactions in the current account and capital/financial account. The current account tracks the balance on goods/services and net investment income. Exchange rates are determined by demand and supply in the currency market under flexible rates. A balance of payments deficit means demand for foreign currency exceeds supply, depreciating the domestic currency. The US has run large and persistent trade deficits due to high growth, China, oil prices, and low domestic savings.
This document provides an overview of international trade concepts including:
- Comparative advantage allows nations to specialize and gain from trade by producing goods where they have a lower opportunity cost.
- Tariffs and quotas create inefficiencies by raising domestic prices and reducing trade quantities from free trade levels.
- Arguments for protectionism include infant industries needing support and unfair foreign competition, but protection reduces overall economic welfare.
This document outlines different macroeconomic theories including:
- Classical theory which assumes stable aggregate demand and a vertical aggregate supply curve.
- The Keynesian view which sees unstable aggregate demand and prices/wages as downwardly inflexible requiring active policy.
- Real business cycle theory which sees recessions as caused by coordination failures and stable price levels.
- New classical economics which believes in rational expectations and the economy's ability to self-correct through price level changes.
- Debate around monetary rules versus discretionary policy approaches.
This document discusses government budget deficits and surpluses. It defines key terms like budget deficit, surplus, and public debt. It examines factors that cause deficits like wars and recessions. It analyzes trends in US deficits and surpluses from 1990 to 2010. It also discusses ownership of the public debt and options for using budget surpluses, such as paying down debt or increasing spending. Substantive issues covered include crowding out effects on investment and issues around foreign ownership of public debt.
This document discusses economic growth and productivity. It covers topics like production possibilities analysis, supply and demand factors of growth, accounting for U.S. growth over time, and the impact of new technologies. Specific drivers of growth mentioned include increases in the labor force, capital goods, education levels, productivity, and technology advancements. Charts show historical U.S. growth rates and contributions to output growth from factors like technological progress and human capital development.
15 interest rates and monetary policy newagjohnson
This chapter discusses monetary policy and how central banks like the Federal Reserve influence interest rates and the money supply. It covers the demand for and supply of money, how the Fed uses tools like open market operations and adjusting interest rates to affect the federal funds rate. It then explains how changes in monetary policy can influence aggregate demand, GDP, and inflation in the economy. The chapter also discusses some advantages and challenges of monetary policy.
This document discusses how banks create money through fractional reserve banking and lending. It explains that banks keep only a portion of deposits as reserves, allowing them to lend out the excess and thereby create new money through the money multiplier effect. As more banks participate in lending, the initial deposit is multiplied across the banking system, with each new deposit creating still more loans and money. A monetary multiplier formula is provided to calculate the maximum increase in money from a given increase in reserves. The system is subject to risks of bank panics if depositors lose confidence and demand withdrawals.
The document discusses the demand and supply of money. It defines different measures of the money supply (M1, M2, M3) which include currency, checkable deposits, savings deposits, money market funds and other savings instruments. The amount of money in circulation depends on how much is demanded by individuals and businesses for transactions and storing wealth. The supply of money is determined by monetary authorities like the Federal Reserve and expands/contracts to meet business needs. Money derives its value from its functions as a medium of exchange, store of value and unit of account which depend on it maintaining stability and purchasing power over time.
This chapter discusses money and banking. It defines the components of the money supply as M1 (currency and checkable deposits) and M2 (M1 plus near monies like savings deposits and money market funds). M1 makes up about 44% of the money supply while M2 makes up the other 56%. The Federal Reserve System acts as the central bank and implements monetary policy through tools like open market operations and setting reserve requirements. Its goals are to facilitate trade, maintain financial system stability, and manage inflation.
This document discusses fiscal policy and its effects on the economy. It covers topics like discretionary versus non-discretionary fiscal policy, how expansionary and contractionary fiscal policies impact aggregate demand and price levels, financing budget deficits and surpluses, built-in stability from automatic stabilizers, full employment deficits, evaluating fiscal policy, problems and criticisms of fiscal policy, and the interactions between fiscal policy and aggregate supply and inflation. Diagrams are presented illustrating these fiscal policy concepts.
This chapter discusses business cycles, unemployment, and inflation. It covers the phases of the business cycle including peaks, recessions, troughs, and expansions. It also discusses the measurement and types of unemployment, including frictional, structural, and cyclical unemployment. The chapter covers inflation measurement using the Consumer Price Index and types of inflation including demand-pull and cost-push inflation. It discusses the impacts of both unemployment and inflation.
This document provides an overview of key concepts in aggregate demand and aggregate supply analysis including:
- The aggregate demand curve is downward sloping due to the real-balances, interest-rate, and foreign purchases effects. The aggregate supply curve has three segments: horizontal, upward-sloping intermediate, and vertical.
- Equilibrium output and price levels occur at the intersection of the aggregate demand and supply curves. A shift in either curve results in a new equilibrium.
- Determinants that influence aggregate demand and supply are discussed, such as consumer spending, investment, government spending, net exports, input prices, and productivity.
- Examples are given of how changes in aggregate demand or supply can cause inflation
This document presents slides on macroeconomic concepts related to consumption, saving, investment, and equilibrium GDP in a closed economy. It introduces key terms like the consumption schedule, saving schedule, average and marginal propensities to consume, investment demand curve, and equilibrium GDP. The slides define these concepts, show them graphically, and discuss how shifts can occur. It also covers non-income determinants of consumption and saving, shifts in investment demand, the instability of investment, and how equilibrium GDP is achieved through the equality of planned savings and investment.
Unemployment has three categories - frictional from job searching, structural from skill/job mismatches, and institutional from policies like minimum wage - which together are considered the natural rate of 5-6%. The measured unemployment rate minus the natural rate is defined as cyclical unemployment.
This document discusses national income accounting and measuring economic output through Gross Domestic Product (GDP). It provides background on how GDP was developed by Simon Kuznets in the 1930s as a way to measure the overall health and performance of the economy. The document defines GDP as the total market value of all final goods and services produced within a country in a given year. It also outlines the different approaches to calculating GDP, including the expenditure approach which adds consumption, investment, government spending, and net exports.
Equilibrium and disequilibrium in markets are discussed. Equilibrium occurs when quantity demanded equals quantity supplied at the equilibrium price. Disequilibrium can occur due to shortages or surpluses caused by price floors or ceilings. Price floors create surpluses while price ceilings create shortages. The government can cause disequilibrium through policies like rent control and minimum wage laws. Non-price rationing may also occur when social pressures prevent prices from reaching equilibrium.
The document is a series of slides about demand and supply in markets. It defines key concepts like demand, supply, equilibrium and how they are represented graphically. It discusses how demand and supply curves are determined by various factors. It also shows how demand and supply curves can shift due to changes in these determining factors, and how such shifts affect equilibrium price and quantity.
This document discusses supply, including the law of supply, supply schedules, supply curves, market supply, and the differences between changes in supply versus changes in quantity supplied. The law of supply states that price and quantity supplied move directly. A supply schedule shows the quantity supplied at different prices, and a supply curve graphs this relationship. Market supply is the total supply from all firms. A change in supply is a shift of the supply curve due to factors like input prices, technology, the number of sellers, or taxes. A change in quantity supplied moves along the existing supply curve due to price changes.
This document provides an overview of demand, including the circular flow diagram, demand schedules, the law of demand, demand curves, market demand, changes in demand versus changes in quantity demanded, and factors that cause changes in demand such as number of buyers, tastes and preferences, income, prices of other goods, availability of credit, and expectations about future prices. It explains that a change in demand is a shift of the entire demand curve, while a change in quantity demanded is a movement along the existing demand curve caused by a change in price.
The circular flow diagram shows the interdependence between households and businesses in an economy. Money flows from businesses to households in exchange for labor, land, capital, and entrepreneurship in factor markets. Households then use this money to buy goods and services from businesses in product markets, completing the circular flow. This simple model illustrates how factor and product markets coordinate economic decisions between households as consumers and producers and businesses as consumers of factors and producers of goods.
Exclusive right to manufacture and sell for 17 years. A single firm can supply a good or service to the entire market at a smaller cost than two or more firms. Economies of scale over the relevant range. Controls 80% of world production of diamonds
Students sometimes have a difficult time understanding why the monopolist has to decrease price in order to sell an additional unit of output. Note that the monopolist will charge the highest price that consumers are willing to pay. When the price is say $5, all consumers willing to pay $5 or more will make a purchase, those willing to pay less than $5 will not buy at $5. In order to attract one more customer (sell one more unit), the monopolist must lower the price, but in doing so (given the “one price” assumption) he will have to charge this lower price to ALL buyers (including those who were happy paying $5). For this reason, if the monopolist wants to sell more units (to make more money) it must also make less per unit (lower price) on all units…the quantity sold increases but the per unit price must drop: the monopolist can not escape the law of demand. For this reason, the monopolist can not charge just any price he/she wants. The monopolist chooses the combination of price and quantity that maximizes profits. This explains why we do not have to pay $1,000 or $2,000 to buy Microsoft’s Windows software. Microsoft may have monopoly power but it must still abide by the law of demand… if you want to sell more units, you must lower the price on ALL units. Monopoly power allows Microsoft to choose the price and the number of units it wants to sell, but this choice must be made within the restrictions imposed by the the market (demand).
Note that total revenue is rising when marginal revenue is positive, is maximized when marginal revenue is zero, and is falling when marginal revenue is negative.