Chapter 7 Competitive market - PowerPoint PPT Presentation

1 / 32
About This Presentation
Title:

Chapter 7 Competitive market

Description:

Title: MANAGERIAL ECONOMICS 11th Edition Author: Mark Hirschey Last modified by: User Created Date: 6/15/2005 3:53:37 PM Document presentation format – PowerPoint PPT presentation

Number of Views:184
Avg rating:3.0/5.0
Slides: 33
Provided by: MarkH259
Category:

less

Transcript and Presenter's Notes

Title: Chapter 7 Competitive market


1
Chapter 7 Competitive market
2
  • Market structure

3
Features of 4 market structures
? of firms Entry product market power E.g
P.competition Very many unrestricted Identical None agriculture
Monopolistic C Many unrestricted Differentiated Some Restaurants/retail trade
Oligopoly Few restricted both Limited/ considerable Steel/
monopoly one blocked unique considerable Local utility
4
OVERVIEW
  • Competitive Environment
  • Factors That Shape the Competitive Environment
  • Competitive Market Characteristics
  • Profit Maximization in Competitive Markets
  • Marginal Cost and Firm Supply
  • Competitive Market Supply Curve
  • Competitive Market Equilibrium

5
KEY CONCEPTS
  • market structure
  • potential entrant
  • product differentiation
  • competitive markets
  • barrier to entry
  • barrier to mobility
  • barrier to exit
  • perfect competition
  • price takers

6
  • normal profit
  • economic profit
  • economic losses
  • marginal analysis
  • competitive firm short-run supply curve
  • competitive firm long-run supply curve.

7
  • ??Definition and features
  • ?.The demand / MR/ AR curves
  • ?.Short run profit maximization
  • ?.Short-run supply curve for a single competitive
    firm
  • ?.long-run profit maximization
  • ?.Implications

8
?.Competitive Environment
  • 1.Definition of Market Structure the competitive
    environment.
  • Number of buyers and sellers.
  • Potential entrants.
  • Barriers to entry and exit, etc.
  • Vital Role of Potential Entrants
  • Competition comes from actual and potential
    competitors.
  • Potential entrants often affect price/output
    decisions.

9
2.Factors that Shape the Competitive Environment
  • Product Differentiation
  • RD, innovation, and advertising are important in
    many markets.
  • Production Methods
  • Economies of scale can preclude small-firm size.
  • Entry and Exit Conditions
  • Barriers to entry and exit can shelter incumbents
    from potential entrants.
  • Buyer Power
  • Powerful buyers can limit seller power.

10
?.Competitive Market Characteristics
  • Basic Features
  • Many buyers and sellers.
  • Product homogeneity.
  • Free entry and exit.
  • Perfect information.
  • Examples
  • Agricultural commodities.
  • Prominent markets for intermediate goods and
    services.
  • Unskilled labor market.

11
  • ?.Curves of TR, AR and MR
  • Example
  • ?? Blanks filling
  • ?? To draw the demand curve and the AR and MR
    curves.

Q P TR AR MR Ed
0 5
1 5
2 5
3 5
4 5
5 5
12
  • firm price taker, price ?f( the firms output)
  • For individual firm, D curve MR curve AR
    curve. (ARP MRP)

P
market
firm
13
  • ?.Profit maximization
  • Q? ?To make the Max profit
  • 1. The simple method TC and TR curve.
  • Q The greatest/positive gap between TR and TC
    curve
  • Max profitTR-TC
  • Table 7.1 Fig7.1

14
(No Transcript)
15
Profit Maximization in Competitive Markets
  • Profit Maximization Imperative
  • Normal profit is return necessary to attract and
    maintain capital investment.
  • Efficient firms can earn normal profit.
  • Inefficient firms suffer losses.
  • Role of Marginal Analysis
  • Set Mp MR MC 0 to maximize profits.
  • MRMC when profits are maximized.

16
  • 2.The complicated one
  • MCMR ? Q
  • Max profit (AR-AC)Q
  • Exampletable7.1 fig7.2

17
(No Transcript)
18
  • Aim Max profit or Min losses in the S.R
  • Way by adjusting Q
  • Three questions must be answered first
  • 1.Should the firm produce?
  • 2.If so, how much?
  • 3.What will be the profit or loss?

19
Answers
  • 1.If PgtATC, yes.
  • If PATC, yes.
  • If ATCgtPgtAVC, yes.
  • If P AVC, yes or no
  • If PltAVC, no.

20
  • 2.Q MR MC.
  • 3.Max profit / Minloss
  • TR-TC(AR-ATC)Q(P-ATC)Q
  • Or
  • TR-TFC-TVC(TR-TVC)-TFC(P-AVC)Q-TFC

21
If P1,Q? If P4, Q? If P3, profit? What is
the minimum Q to produce?
  • ?

22
?.Marginal Cost and Firm Supply curve
  • Marginal cost curve is the short-run supply
    curve so long as P gt AVC .

23
(No Transcript)
24
Long-run Firm Supply
  • Marginal cost curve is the long-run supply curve
    so long as P gt ATC.

25
(No Transcript)
26
?.Competitive Market Supply Curve
  • Market Supply With a Fixed Number of Competitors
  • Supply is the sum of competitor output.
  • Market Supply With Entry and Exit
  • Entry results in more firms, increased output, a
    rightward shift in the supply curve, and drives
    down prices and profits.
  • Exit reduces the number of firms, decreases the
    quantity of output, shifts the supply curve
    leftward, and allows prices and profits to rise
    for remaining competitors.

27
(No Transcript)
28
(No Transcript)
29
?.Competitive Market Equilibrium
  • Balance of Supply and Demand
  • Equilibrium is a balance of supply and demand.
  • Normal Profit Equilibrium
  • With a horizontal market demand curve, MRP.
  • PMRMCATC.
  • There are no economic profits.
  • All firms earn a normal rate of return.

30
(No Transcript)
31
(No Transcript)
32
(No Transcript)
Write a Comment
User Comments (0)
About PowerShow.com