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imperfect competition slides aec 303

imperfect competition slides aec 303 - Imperfect...

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Unformatted text preview: Imperfect Competition Models of Competition Perfect (Pure) Competition I Horizontal demand curve P=MR=AR No individual firm large enough to influence price Demand "perfectly elastic" (infinite elasticity) Profit maximum where MC=MR Homogeneous product (your corn and minel) Pure Competition AC l M R=AR=D=P AFC ¢* Output No urofit in lon- run e-uilibrium. Models of Competition Monopolistic Competition I D not equal to MR Demand curve not horizontal (slight downward slope) Demand elastic but not perfectly so Some product differentiation Elasticities more negative than -1 Examples: -3, or -25 Canned peas!!! Monopolistic Competition Proft In monopolistic competition, pure (economic) profit is possible, but not assured in long run equilibrium. Models of Competition —: "Few" sellers Pricing and output decisions by firm linked to pricing and output decisions of other firms in the industry "Kinked" demand curve Competition ignores price increases but follows price decreases Prices tend to be sticky For an Oligopoly, there are possible pure profits in the Long Run Airlines, Automobiles and Computers (perhaps) Product differentiation is a key characteristic Impact of Changing Marginal Costs on Oligopoly Pricing Vl'h\e "Kink" diaconllnuous ompetltlon _l 1 Firm Firm is the industry There can be long run profits Not always profitable (Monopoly in hula hoops!) Patents, licenses D not equal to MR Elasticity depends on how badly consumers need (want) the good Are there good substitutes ? Polaroid??? Monopoly *////‘L.,// , V! Contemporary views of Imperfect Competition Economic Structure Economic Structure Number of firms in Industry Percentage of output by top 5, top 10 etc. Concentration ratio Bain Model (due to Joe Bain) Conduct Price Product Promotion Predatory practices industry 1 Performance Industry Industry Profitability Price vs. AC Do arrows run both directions??? Economic Structure industry Performance Firm Growth opfions: 1. Horizontal mergers 2. Conglomerates 3. Vertical integration 4. lntemal growth through reinvestment of profits ~L Eig$m Ionl . " Pfilfi %markets “I 2. #100355 toc 3. Demand for goods produc d 5 ”gagitrflfstfi lawss .s,‘ “1% , ralllprot‘ tab Lty 6. Patents, licenses held by others Farmers are (usually) price-takers C'oo eratives formed: ? inputs—four St btefigenexwé. o uts--3 iiiry attem ft eriate to 3; gflr rrinput prices l; higher outnut prices ““0 i yvorks(som‘é’t’i‘m !) I? dairyand anges but notw -at,and beef ‘1. .33 ...
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