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Chapter Notes - LONG RUN EQUILIBRIUM PERFECT COMPETITION...

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Unformatted text preview: LONG RUN EQUILIBRIUM PERFECT COMPETITION RESULTS: FREE ENTRY LEADS TO ZERO PROFITS IN THE LONG RUN LONG RUN ADJUSTMENTS PURE COMPETITION SHORT RUN PROFITS — FIRMS ENTER LONG RUN ADJUSTMENTS PURE COMPETITION SHORT RUN LOSSES — FIRMS EXIT r V- A SHORT RUN PROFITS ATTRACT MORE PRODUCERS IN THE LONG RUN - , . SHORT RUN LOSSES CAUSE FIRMS ' I ‘ TO EXIT IN THE LONG RUN ‘ ' ' ASSUMES: FIRMS CAN FREELY ENTER y OR LEAVE THE MARKET IN THE LONG I RUN- ' / CONCLUSION ” -' WITH FREE ENTRY AND EXIT, IN - THE LONG RUN A FIRM INA *- * PERFECTLY COMPETIVE MARKET WILL EARN ZERO ECONOMIC PROFITS o REMEMBER, F[RMS WILL STILL ' COVER IMPLICIT COSTS ' IMPLICATIONS OF THIS CONCLUSION MONOPOLY . NOTE: A GOOD SUMMARY OF THE ' CHARACTERISTICS OF VARIOUS MARKET STRUCTURES IS FOUND 0N PAGE 1- l3! . “CHARACTERISTICS OF MONOPOLY: o NUMBER OF FIRMS. ONE ' 0 TYPE OF PRODUCT: UNIQUE . . DEMAND CURVEz-EIRM FACES . MARKET DEMAND CURVE ..o ENTRY CONDITIO:NS LARGE BARRIERS TO ENTRY > - o ECONOMICS OF SCALE (NATURAL MONOPOLY) . o PATIENTS Q FRANCHISES - DEMAND CURVE. . Perfect Competition f V. - _M0n0Apolya RESULTS OFMONOPOLIST FACING . . THE MARKET DEMAND CURVE (SLOPES DOWNWARD) I REMEMBER: TR =11) .* Q , - MR = ATR/AQ _ FOR A MONOPOLIST: MR < P ' FOR A FIRM IN PERFECT ' » COMPETITION: -- MR= P * ’ "SOME NUMBERSMIGHT HELP WITH '. . THIS 3 - . Price ' _ Quantity Sold Total Revenue ' Marginal Revénue ‘ $14K ' . $14 ' $24 ' _ ' $10 ' MONOPOLY PROFIT MAXIMIZING EQUILIBRIUM MC = MR AGAIN v.163) MONQPOLY VRS. PERFECT COMPETITION ‘ - A COMPARISON PERFECT COMPETION RESULTS. MONOPOLY RESULTS IN . HIGHER PRICES AND LESS OUTPUT (PAGE PRICE DISCRIMINATION BY A MONOPOLIST . CIMRGING DIFFERENT PRICES T0 . DIFFERENT GROUPS OF CONSUMERS FOR ' THE SAME GOOD. FOR THISTO OCCUR, THE FOLLOWING CONDITIONS MUST EXIST: - T 0 THE PRODUCER MUST HAVE CONTROL OVER PRICE— MARKET POWER 0 DIFFERENT CONSUMER GROUPS WITH . DIFFERENT WILLINGESS TO PAY MUST -' EXIST A 0 RESALE OF THE GOOD IS NOT POSSIBLE . ‘ EXAMPLES: . DISCOUNTED AIR LINE TICKETS - . STUDENT DISCOUNTS ETC (PAGE .167) PRICE DISCRIMINATION .A GRAHICAL VIEW 4 SINGLE PRICE ' " PRICE MONOPOLIST DISCRIMINATING MON OPOLIST f RESULTS: TR GREATER FOR PRICE j DISCRIMINATIN G MON OPOLIST ...
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