1) The document discusses different market structures including perfect competition and monopoly. 2) Under perfect competition, firms are price takers and can only earn normal profits in the long run. A monopoly has market power to set prices and can earn supernormal profits. 3) A monopoly will choose to produce a lower quantity at a higher price than under perfect competition, resulting in lower output but higher profits for the monopoly.

1. Profit Maximisation under Perfect Competition and Monopoly

2. Alternative Market Structures Classifying markets (by degree of competition) number of firms freedom of entry to industry free, restricted or blocked? nature of product homogeneous or differentiated? nature of demand curve degree of control the firm has over price

3. Alternative Market Structures The four market structures perfect competition monopoly monopolistic competition oligopoly

4. Features of the four market structures

5. Features of the four market structures

6. Features of the four market structures

7. Features of the four market structures

8. Features of the four market structures

9. Features of the four market structures

10. Alternative Market Structures The four market structures perfect competition monopoly monopolistic competition oligopoly Structure  conduct  performance

11. Perfect Competition Assumptions firms are price takers freedom of entry of firms to industry identical products perfect knowledge Distinction between short and long run normal profits supernormal profits

12. Perfect Competition Short-run equilibrium of the firm Price given by market demand and supply Output where P = MC Profit ( AR – AC ) × Q possible supernormal profits

13. Short-run equilibrium of industry and firm under perfect competition O £ (b) Firm Q (thousands) O (a) Industry P Q (millions) Q e S D P e MC AR D = AR = MR AC AC

14. Loss minimising under perfect competition O O (a) Industry P £ Q (millions) S D (b) Firm Q (thousands) Q e P 1 D 1 = AR 1 = MR 1 AR 1 MC AC AC

15. Short-run shut-down point O O (a) Industry P £ Q (millions) S (b) Firm MC AC Q (thousands) D 2 P 2 AR 2 D 2 = AR 2 = MR 2 AVC

16. Perfect Competition Short-run equilibrium of the firm (cont.) short-run supply curve of firm the MC curve Short-run supply curve of industry sum of supply curves of firms

17. Perfect Competition The long run long-run equilibrium of the firm all supernormal profits competed away

18. Long-run equilibrium under perfect competition 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

19. Perfect Competition The long run long-run equilibrium of the firm all supernormal profits competed away LRAC = AC = MC = MR = AR

20. Long-run equilibrium of the firm under perfect competition £ Q O (SR)AC (SR)MC LRAC AR = MR D L LRAC = (SR)AC = (SR)MC = MR = AR

21. 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

22. 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

23. 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?

24. Monopoly Defining monopoly importance of market power concentration ratios

25. Concentration ratios in the UK

26. Monopoly Barriers to entry economies of scale product differentiation and brand loyalty lower costs for an established firm ownership/control of key factors or outlets legal protection mergers and takeovers aggressive tactics

27. Monopoly The monopolist's demand curve downward sloping MR below AR

28. AR and MR curves for a monopoly Q (units) 1 2 3 4 5 6 7 P =AR (£) 8 7 6 5 4 3 2 AR AR, MR (£) Quantity

29. AR and MR curves for a monopoly Q (units) 1 2 3 4 5 6 7 P =AR (£) 8 7 6 5 4 3 2 TR (£) 8 14 18 20 20 18 14 MR (£) 6 4 2 0 -2 -4 MR AR, MR (£) Quantity AR

30. Monopoly Equilibrium price and output MC = MR

31. Profit maximising under monopoly £ Q O Q m MR MC

32. Monopoly Equilibrium price and output MC = MR measuring level of supernormal profit

33. Profit maximising under monopoly £ Q O Q m MR MC

34. Profit maximising under monopoly £ Q O MC Q m MR AC AR AC AR

35. Profit maximising under monopoly £ Q O MC AC Q m MR AR AR AC Total profit

36. Monopoly Equilibrium price and output MC = MR measuring level of supernormal profit Monopoly versus perfect competition

37. Monopoly Equilibrium price and output MC = MR measuring level of supernormal profit Monopoly versus perfect competition lower output at a higher price

38. Equilibrium of industry under perfect competition and monopoly: with the same MC curve £ Q O Q 1 P 1 Monopoly AR = D MC MR

39. Equilibrium of industry under perfect competition and monopoly: with the same MC curve £ Q O MC ( = supply under perfect competition) Q 1 MR P 1 Q 2 AR = D Comparison with Perfect competition P 2

40. Monopoly Equilibrium price and output MC = MR measuring level of supernormal profit Monopoly versus perfect competition lower output at a higher price short run and long run

41. Monopoly Equilibrium price and output MC = MR measuring level of supernormal profit Monopoly versus perfect competition lower output at a higher price short run and long run costs under monopoly

42. Equilibrium of industry under perfect competition and monopoly: with different MC curves £ Q O Q 1 MR P 1 MC monopoly AR = D

43. Equilibrium of industry under perfect competition and monopoly: with different MC curves £ Q O MC ( = supply) perfect competition Q 1 MR P 1 P 2 Q 2 MC monopoly AR = D x Q 3 P 3

44. Monopoly Equilibrium price and output MC = MR measuring level of supernormal profit Monopoly versus perfect competition lower output at a higher price short run and long run costs under monopoly innovation and new products

45. Contestable Markets Importance of potential competition low entry costs low exit costs Perfectly contestable markets Contestable markets & natural monopolies The importance of costless exit absence of sunk costs hit-and-run competition Assessment of the theory