ManEconCh06 - MANAGERIAL ECONOMICS: THEORY, APPLICATIONS,...

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MANAGERIAL ECONOMICS: THEORY, APPLICATIONS, AND CASES W. Bruce Allen | Keith Weigelt | Neil Doherty | Edwin Mansfield CHAPTER  6 Perfect Competition
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OBJECTIVES Explain how managers should respond to  different competitive environments (or  market structures) in terms of pricing and  output decisions
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OBJECTIVES Market Power A firm's pricing market power depends on its  competitive environment. In perfectly competitive markets, firms have no market  power. They are "price takers." They make decisions  based on the market price, which they are powerless to  influence. In markets that are not perfectly competitive (which  describes most markets), most firms have some degree  of market power.
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OBJECTIVES Strategy in the absence of market power Firms cannot influence price and, because  products are not unique, they cannot influence  demand by advertising or product  differentiation. Managers in this environment maximize profit  by minimizing cost, through the efficient use of  resources, and by determining the quantity to  produce.
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MARKET STRUCTURE Perfect competition: When there are many  firms that are small relative to the entire  market and produce similar products Firms are price takers. Products are standardized (identical). There are no barriers to entry. There is no nonprice competition.
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MARKET STRUCTURE Imperfect competition Firms have some degree of market power and  can determine prices strategically. Products may not be standardized. Firms employ nonprice competition. Product differentiation Advertising Branding Public relations
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Monopolistic competition: When there are many firms  and consumers, just as in perfect competition; however,  each firm produces a product that is slightly different  from the products produced by the other firms. There are no barriers to entry. Monopoly: Markets with a single seller Barriers to entry prevent competitors from entering the market. Oligopoly: Markets with a few sellers
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ManEconCh06 - MANAGERIAL ECONOMICS: THEORY, APPLICATIONS,...

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