L10Competition - Introduction to Microeconomics Lecture 10...

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Introduction to Microeconomics Lecture 10 Perfect Competition, Monopoly and Price Discrimination Simon Cowan
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Outline Perfect Competition Short-Run and Long-run Monopoly Price Discrimination
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Perfect Competition A market situation in which no participant has significant power Large numbers of buyers and sellers Homogeneous product Perfect information Freedom of entry and exit in the long run
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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 horizontal demand curve MR = P (“marginal revenue = price”) 2. Firms are profit maximisers 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)
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SHORT-RUN EQUILIBRIUM OF THE FIRM P 1 P 2 P 3 q 1 q q 3 q 2 AC MC SUPER-NORMAL PROFIT LOSS P,C
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SHORT-RUN SUPPLY CURVE OF THE FIRM P 1 P 2 P 3 q 1 q q 3 q 2 AC MC P,C AVC SRS SRS is the MC curve above AVC
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Short-run Supply Curve of the Industry In the short run the number of firms is fixed Therefore the Industry SRS is simply the horizontal sum of all the current Firms’ SRS curves
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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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