Week 7 Perfect competition

Week 7 Perfect competition - Perfect Competition(TF Chapter...

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Perfect Competition (TF Chapter 9)
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2 Today’s Agenda Perfect competition How is it defined? Entry and exit of firms Long run equilibrium Effect of market changes (adjusting to a new equilibrium) External economies of scale
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3 Market Structure PERFECT COMPETITION Many firms Identical product Firms are price-takers No barriers to entry OLIGOPOLY Few firms Differentiated or identical products Barriers to entry MONOPOLISTIC COMPETITION Many firms Differentiated products No barriers to entry MONOPOLY One firm Firm is a price-maker Strong barriers to entry No close substitutes
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4 Examples of Different Market Structures PERFECT COMPETITION OLIGOPOLY MONOPOLISTIC COMPETITION MONOPOLY
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5 Measuring Market Power The Concentration Ratio A measure used to describe market structure N-firm concentration Measures the percentage of the value of sales accounted for by the N largest firms in the market 0% = Perfect Competition 100% = Monopoly
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6 Measuring Market Power Concentration ratios are an imperfect measure of market conditions. Market definition Product Geography Barriers to entry Behaviour of firms
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7 Perfect Competition Characteristics of Perfect Competition Many firms Each firm sells an identical product No restrictions on entry into the industry Firms and buyers are well informed about prices of the products of each firm In a perfectly competitive industry, firms are price takers .
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8 Demand in a competitive market P Q P Q Market Demand Firm’s Demand D
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Maximising Profits The firm chooses the output that maximises profits Recall: we find the derivative of the profit function with respect to output and equate it to zero To maximise profits Marginal revenue = Marginal cost
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This note was uploaded on 08/18/2011 for the course ECON 1001 taught by Professor - during the Three '07 term at University of Sydney.

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Week 7 Perfect competition - Perfect Competition(TF Chapter...

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