L10Competition - Introduction to Microeconomics Lecture 10...

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1 Introduction to Microeconomics Lecture 10 Perfect Competition, Monopoly and Price Discrimination Simon Cowan Outline z Perfect Competition z Short-Run and Long-run z Monopoly z Price Discrimination Perfect Competition z A market situation in which no participant has significant power z Large numbers of buyers and sellers Homogeneous produc z Homogeneous product z Perfect information z Freedom of entry and exit in the long run Short-run Equilibrium of the Firm -- Perfect competition The short-run here means (a) that the number of firms is fixed: there is no entry or exit and (b) some costs may be fixed in which case there is a difference between average variable cost (AVC) and average cost (AC) 1 Firms are price takers 1. Firms are price-takers z horizontal demand curve z MR = P (“marginal revenue = price”) 2. Firms are profit maximisers z MR = MC (“marginal revenue = marginal cost”) 3. 1. and 2. imply that P = MC 4. For a unique solution to the maximisation problem we must assume that MC is upward-sloping (over some of its range) SHORT-RUN EQUILIBRIUM OF THE FIRM P 3 AC MC P,C P 1 P 2 q 1 q q 3 q 2 SUPER-NORMAL PROFIT LOSS SHORT-RUN SUPPLY CURVE OF THE FIRM P 3 AC MC P,C SRS SRS is the MC curve above AVC P 1 P 2 q 1 q q 3 q 2 AVC
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2 Short-run Supply Curve of the Industry z In the short run the number of firms is fixed z Therefore the Industry SRS is simply the
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This note was uploaded on 04/12/2010 for the course ECON DEAM taught by Professor Vines during the Spring '10 term at Oxford University.

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L10Competition - Introduction to Microeconomics Lecture 10...

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