Lecture 19 - Announcements Reading for Monday text Ch 10 pp...

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11/22/2009 1 ± Reading for Monday ± text Ch 10 pp. 268-287 (256-272 5 th edition) ± Reading for Wednesday ± text Ch 10 pp. 287-295, Ch 12 pp. 336-340; issues 18,20 Announcements text Ch 10 pp. 287 295, Ch 12 pp. 336 340; issues 18,20 (272-279, 318-322 5 th edition) Assumptions ± Individual buyers and sellers are too small to affect the market ± No barriers to entry into the market ± The products in the market are homogenous: every one is exactly alike ± Information: everyone knows everything about the product and the price ± Products are “private goods”, privately consumed with no affects on other people ± Ignore time Market Structure ± Competitive Market ± everybody small ± homogeneous product ± no barriers to entry 8 ± Monopoly ± single producer of a good ± no close substitutes ± barriers to entry Causes of Market Power 8 ± competition - large number of firms can be supported at minimum efficient scale ± economies of scale - cost conditions ± compare market demand to size of efficient production Q P Market D Market Q Competitive S (LR) ATC Firm q Market demand very large relative to efficient firm quantity Q = (# firms) × q ± natural monopoly - ATC is declining and minimum efficient scale bigger than the market Causes of Market Power ± economies of scale - cost conditions ± compare market demand to size of efficient production 8 ± monopoly - demand supports only one large firm P Market demand small relative to efficient firm quantity Q Market D Firm q (efficient) Causes of Market Power ± barriers to competition ± restrictions reduce the number of competitors below the number that would survive based on efficiency or cost conditions 8 ± economies of scale - cost conditions ± compare market demand to size of efficient production patents copyrights licenses zoning
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11/22/2009 2 ± demand and supply determine market price ± firm’s demand is horizontal at the market price ± firm is price-taker Firm Demand 9 P S P Competitive Supply Competitive Firm’s Demand Curv ± competitive market Firm Q Market Q D D Market Price Market Demand Demand Curve Firm Demand ± monopolist faces the market demand curve ±
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Lecture 19 - Announcements Reading for Monday text Ch 10 pp...

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