Chapter10

Chapter10 - MANAGERIAL ECONOMICS An Analysis of Business...

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1 MANAGERIAL ECONOMICS An Analysis of Business Issues Howard Davies and Pun-Lee Lam Published by FT Prentice Hall
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2 Chapter 10: Models of Market Structure Objectives: To explain the formal models of market structure used in economic analysis . Perfect competition; Monopoly; Oligopoly; Monopolistic Competition To explain how price is determined in these models.
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3 Formal Textbook Models Economic analysis identifies four types of market structure PERFECT COMPETITION MONOPOLY OLIGOPOLY MONOPOLISTIC COMPETITION The basis for the STRUCTURE-CONDUCT- PERFORMANCE approach to industrial organization. Structure determines prices and profitability
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4 What Is the Structure of These Different Types of Industry? What is the Result of that Structure? Perfect Competition Large No of Small Firms, (i.e.No Economies of Scale), Identical Products, Free Entry to the Industry, Perfect Knowledge of market Opportunities see the diagrams, pp.198-200 SHORT RUN price is determined at industry level by supply and demand each firm has a horizontal demand curve at the market price demand and marginal revenue curve are the same MR = P = MC LONG RUN entry takes place, shifting supply curve to the right and price down super-normal profits are competed away, P= minimum LAC
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5 Perfect Competition: Short Run Industry Firm P P Q Q D S P q 0 q 1 q 2 P 2 P 1 D=AR=MR SMC
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6 Perfect Competition: Short Run The Firm in More Detail SMC SAC P = AR =MR q AC
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7 Perfect Competition: LongRun P L is the only possible long run price SAC P = AR =MR q P L LAC
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This note was uploaded on 08/07/2011 for the course PMBA 2963.2 taught by Professor Stephenchiu during the Spring '03 term at HKU.

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Chapter10 - MANAGERIAL ECONOMICS An Analysis of Business...

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