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chapter 11 market with no market power,perfect competitve firms

Chapter 11 market with no market power,perfect competitve firms

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Chapter 12: Managerial Decisions in Competitive Markets Chapters 1 to 6 provided the basic tools of analysis for understanding how product price and output are determined. But, a firm’s decisions concerning price and production will depend greatly on the character of the industry in which it is operating. There is no average or typical industry. At one extreme is a single producer that dominates the market; at the other extreme are industries in which thousands of firms each supply a minute fraction of total output. And between these extremes lies an unlimited variety of market structures. We will focus on several basic models of market structures. Together, these models will help you understand, in a general way, how price and output are determined in the many product markets in our economy. They will also help you assess the extent of efficiency or inefficiency in those markets. Market structure The characteristics of a market that influence how trading takes place How many buyers and sellers? Or Number & size of firms in market Products: standardized or significantly different? Or degree of product differentiation Barriers to entry/exit? Or likelihood of new firms entering market 1
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Types of markets 1) Perfect competition 2. Monopoly 3. Monopolistic competition 4. Oligopoly What is a Market? A market is any arrangement through which buyers & sellers exchange goods & services. Markets reduce transaction costs. Costs of making a transaction other than the price of the good or service. Market characteristics that determine the economic environment in which a firm operates. Number & size of firms in market Degree of product Likelihood of new firms entering market 2
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3 Market structure and managers Perfect Competition Large number of relatively small firms Undifferentiated product No barriers to entry Monopoly Single firm Produces product with no close substitutes Protected by a barrier to entry Monopolistic Competition Large number of relatively small firms Differentiated products No barriers to entry Oligopoly Few firms produce all or most of market output Profits are interdependent Actions by any one firm will affect sales & profits of the other firms Four Key Questions - - - 3
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Demand for a Competitive Price-Taker
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