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Types of market structure 1. Perfect competition

Types of market structure 1. Perfect competition. Types of market structure.

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Types of market structure 1. Perfect competition

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  1. Types of market structure1.Perfect competition

  2. Types of market structure Different industries have different market structures. Different market characteristics determine the relations among sellers, and relationsbetween sellers and buyers. The most important aspects of market structure are:1. the degree of concentration of sellers in the industry2. the degree of product differentiation3. the ease or difficulty with which new sellers can enter the industry.

  3. In general we classify market structures into four types: • perfect competition – many producers of a single, unique good; (e.g. potatoes, onion) • monopoly- single producer of an unique good ;(e.g. Poczta Polska, energy, water suppliers) • monopolistic competition – many producers of slightly differentiated; goods (e.g. clothes, sweets, computers etc.) • oligopoly– few producers, with a single or only slightly differentiated; good (e.g. cigarettes, cell phones, satelite TV)

  4. What determines market structure? It depends on how difficult it is to enter the market. That depends: • on control of the necessary resources or inputs, government regulations, • economies of scale, technological superiority. • It also depends on how easy it is to differentiate goods: • Soft drinks, economic textbooks, breakfast cereals can readily be madeinto different varieties in the eyes and tastes of consumers. • Red roses are less easy to differentiate

  5. Perfectly competitive market • many buyers and sellers, • identical (also known as homogeneous) products, • no barriers to either entry or exit, • buyers and sellers have perfect informationabout market, • In perfect competition, all producers are price takers, as they have to accept what the market says is the appropriate price and they cannot do anything to shift that price.

  6. Demand curve facing a single firm • no individual firm can affect the market price • demand curve facing each firm is perfectly elastic

  7. Profit maximization • produce where MR = MC

  8. P = MR

  9. Profit-maximizing level of output

  10. Economic Profits > 0 Economic profit

  11. Economic loss (AVC<P< ATC)

  12. Loss if shut down

  13. Break-even price • If price = minimum point on ATC curve, economic profit = 0. • Owners receive normal profit. • No incentive for firms to either enter or leave the market.

  14. Short-run supply curve • A perfectly competitive firm will produce at the level of output at which P = MC, as long as P > AVC.

  15. Long run • Firms enter if economic profits > 0 • market supply increases • price declines • profit declines until economic profit equals zero (and entry stops) • Firms exit if economic losses occur • market supply decreases • price rises • losses decline until economic profit equals zero

  16. Long-run equilibrium

  17. Long-run equilibrium and economic efficiency • Perfectly competitive market is the only market structure, at which: • P = minimum ATC Film

  18. Bibliography: • http://www.oswego.edu/~kane/eco101.htm • http://www.econ.yale.edu/~gjh9/econ115b/slides11_4perpage.pdf • http://facultate.regielive.ro/seminarii/engleza/market_structer_competition_monopoly_and_oligopoly-41943.html

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