perfect competition notes 2017 - PERFECT COMPETITION...

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PERFECT COMPETITION
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Understanding how firmsoperate indifferent market structures Impo rtanttermsand concepts Four marketstructures - Perfectcompetition, Monopoly , Monopolisticcompetition, Oligopoly Homogenous Barriers toentryand exit Price takers
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ALTERNATIVE MARKET STRUCTURES & FIRM BEHAVIOUR Classifying markets bydegreeof competition numberof firms freedomof entryto industry natureof product natureof demandcurve Thefourmarketstructures perfectcompetition monopoly monopolisticcompetition oligopoly
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Features of the four market structures Type of market Number of firms Freedom of entry Nature of product Examples Implications for demand curve faced by firm Perfect competition Many Unrestricted Homogeneous Cabbages, carrots Horizontal: firm is a price taker Monopolistic competition several Unrestricted Differentiated Builders, restaurants Downward sloping, but relatively elastic Oligopoly Few Restricted Undifferentiated or differentiated Cement cars, electrical appliances Downward sloping. Relatively inelastic (shape depends on reactions of rivals) Monopoly One Restricted or completely blocked Unique Local water company , train operators (over particular routes) Downward sloping: more inelastic than oligopoly . Firm has considerable control over price
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Something to think about if you havetogototown does it matter which taxi youget into? Canyou negotiate the price with the taxi driver? If yougettothe main road and seetwo taxisracing off towards townwillyou bestranded in the mainroad? If yougotocheckersto buysomepotatoes(orany fruit orveg of yourchoice) would it makeadifference whetheritwas supplied by farmer X or farmer Y ? Wouldyou beableto tell the difference between the potatoes from farmerXand FarmerY? Canyou negotiate the price of thepotatoesatcheckers? If you feel potatoesaretooexpensive and stopbuying it for twoweek will you be able to inf luence the price ?
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Manysellers Each firmsupplies tinyfraction of industryoutput Nosingle firmcan mkt P by ing its S Firmsare P takers - accept market P No marketpower (MP) But if all firms ( ) S, P s( s) Many buyers Eachconsumerdemands tiny fractionof mkt D Nosingleconsumercan mkt P by ing Q they demand No Market Power But if all consumers ( ) D, P ( s) Characteristics of PC
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