Market Models PPT
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Transcript of Market Models PPT
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8/17/2019 Market Models PPT
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Involves a very large number of rms producing astandardized product or identical products.
Characteristics:
1.Very large numbers
2. Standardized product
.! "rice ta#ers$
%. &ree entry and e'it
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(emand by a purely competitive seller:
)he rm represented cannot obtain a higher
price by restricting its output * nor does itneed to lo+er its price to increase its sales
volume.
Slope of demand curve: ,orizontal
"roductive e-ciency
Is achieved because free entry and e'it force rms tooperate +here )C is at minimum. "roduct price is at thelo+est level consistent +ith minimum )C.
)he llocative e-ciency
/esults because production occurs up to that
output at +hich price e0uals marginal cost.
"rice and outputdetermination:
"erfectly elastic demand
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'ists +hen a single rm is the sole producer of aproduct for +hich there are no close substitutes.
Characteristics:
1.Single seller
2. o close substitutes
. "rice 3a#er
%. 4loc#ed entry
5. on price competition
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(emand by a monopolist:
demand is elastic* a decline in price +ill increase totalrevenue.
Slope of 3onopolist6s demand curve : (o+n+ard
"rice and 7utput
determination:
3onopolist has to lo+er the price and considerproducing goods in economies of scale 8volume ofproduction9 to increase revenue.
3onopolist produce +here 3arginal /evenue ispositive* it never produce at negative 3/.
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3onopolist (emand curve is its mar#etdemand curve:
4ecause the pure monopolist is the
industry.
4arriers to entry:
1.conomies of scale
2. egal barriers to entry:"atents and /esearch
. 7+nership or control ofessential resources
%. "ricing and otherstrategic barriers to entry.
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Marginal revenue is less than the price (AR)
;here pure monopolist can
increase sales only by charginglo+er price.
;hy is it that monopolist sets price in theelastic region of demand<
7utput and "rice determination:
3onopolist +ill produce up to the output at+hich 3/ e0ual 3C.
nother +ay is by comparing )/ and )C
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3isconceptions concerning 3onopoly"ricing:1.ot highest price.
2. )otal* not unit prot
)he practice of selling a specic product at more
than one price +hen the price di=erences are not >ustied by cost di=erences.
"rice discrimination can ta#e three forms:
1.Charging each customer in a single mar#et the
ma'imum price she or he is +illing to pay.2. Charging each customer one price for the rst set
of unitspurchased and a lo+er price for subse0uent
units.. Charging some customers one price and other
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Conditions to price discrimination:
1.3onopoly po+er
2. 3ar#et
segregation
.o resale
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Characteristics:1. relatively large number of sellers
2. (i=erentiated products
. asy entry to* and e'it from
spects of product di=erentiation:
1. "roduct attributes2. Service. ocation%. 4rand names and
pac#aging
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(emand curve is highly * but notperfectly elastic.
(C is not perfectly elastic because of t+o
reasons:1.3onopolistic competitor has fe+er
rivals.
2. "roducts are di=erentiated* so theyare not perfect substitutes.
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)he Short /un: "rot or oss
3onopolistic competitors produce the level ofoutput at +hich marginal revenue equals marginal cost(MR=MC) .
Earn economic proftong /un:
&irms can only earn normal prot or
brea# even prot
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3ar#et dominated by a fe+ largeproducers of a homogenous ordi=erentiated product.Characteristics:
1.,omogenous or di=erentiatedproduct.
2. Control over price but mutualinterdependence
. ntry barriers
%. 3ergers
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he stud! o" ho# people $ehave in
strategic situations. %ligopolies aremutuall! interdependent in their pricingpolicies.
&la!ers (oligopolists) must pattern theiractions according to the actions ande'pected reactions o" rivals.
Cooperation +ith rivals. secretagreement among producers8oligopolists9 concerning controlover price and output
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)hree oligopoly models:
1.)he ?in#ed (emand
Curve
2.Collusive pricing
. "rice leadership