Upload
annis-newton
View
225
Download
0
Tags:
Embed Size (px)
Citation preview
A.S 3.1
Understand Marginal analysis and the behaviour of firms
SLO: Describe characteristics of a perfectly competitive firm.
Derive the demand curve for a perfectly competitive firm given market demand and supply.
Calculate Total, Average and Marginal Revenue for firms.
COMPETITION
Price
d
Quantity
Price
Quantity
d
Perfect Competition= No control over price
Imperfect Competition = Some control over price
Characteristics of a Perfectly Competitive Market
Large number of buyers and sellers (firms)
Firms have no market power and are price takers Each firm supplies a small amount of the overall market supply Firms cannot influence the market price by altering its output. Only able to sell their good at the price determined in the market
Output is homogenous Product is identical to that produced by other firms
Resources are perfectly mobile
Buyers and firms have perfect knowledge of the market
No Barriers to entry or exit from the market Its easy to set up a firm in this market structure
Perfect Competition Example Market garden
Uses simple resources Land, seeds, water,
fertiliser, equipment and labour
Price determined by the market
What will happen to the price if demand increases?
What may happen to the price if the growing conditions have been favourable?
NZ examples?
-Dairy farming
-Wool growing
-Fishing
Imperfect Competition
There are five different types of market structures that are imperfect Monopolistic competitionOligopoly DuopolyMonopolyMonopsony
Monopolistic Competition
Has the following characteristicsThere are a large number of firms in the
industry Each firm has some control over price
because they can differentiate their productThere are weak barriers to entry and exit Consumer and producer knowledge is
imperfect
Monopolistic Competition -Examples Shops and other service providers.
Dairies Takeaway shopsHairdressersGarages
Monopolistic Competition
D
Price
Quantity
Monopolistic firms have a small level of control over price or output (due to product differentiation)
Therefore they face a downwards sloping demand curve
Oligopoly Has the following characteristics
Few number of large sellers, that dominate the market Sells similar but differentiated products. Price is usually similar across the industry Firms have some control over price Firms prefer to use non-price competition to provide a
competitive advantage Strong barriers to entry by new firms Often accused of collusion, as existing firms look as
though they act together in their pricing decisions.
Oligopoly: Example Petrol retailing companies
Few large competitors BP SHELL Caltex Mobil
Smaller players Challenge Gull
Sell a homogeneous product. These firms differentiate their product with powerful branding using heavy advertising logos sponsorship and other promotions
Other Examples
•New car market
-Ford, Mitsubishi, Toyota, Honda
•Fast Food market
- McDonalds, KFC, Burger King
•Retail banking market
- BNZ, ANZ, Kiwibank, Westpac
Kinked Demand Curve
p
q
q1 q2 q3
If producer reduces price (from P2 to P3) the competitors are likely to follow. The result is a smaller % increase in sales from q2 to q3. (inelastic demand).
If producer increases price (P2 to P1) the competitors are unlikely to follow. The result is a larger % fall in sales from q2 to q1 (elastic demand)
d
P1
P2
P3
The risk of using Price Competition A price war may arise ( firms keep lowering
prices to try and gain a greater market share.
This may result in a firm or firms being unable to operate and might be forced to leave the market altogether. While the firms that survived, will have to settle for decreased profits (as prices are lower) until the price war is over.
Due to this risk, Oligopolists prefer not to use
price competition and stick to using non-price competition.
Non-Price Competition
Product Differentiation
Make the product appear different
Product Variation
Make the product really different
Product Differentiation
Duopoly
Has the following characteristicsMarket is dominated by two large producersHave considerable influence on priceProduce differentiated products, with the use
of non-price competitionStrong barriers to entry of new firms
Duopoly
KEY
Market
Firm
Duopoly Examples
Mobile firm services Telecom and Vodaphone (one company owns 2
degrees)
Domestic airlines in NZ Quantas NZ and Air NZ
Supermarkets Foodstuffs ( New World, Pak’ n’ Save) Woolworths Australia (Woolworths, Foodtown,
Countdown)
•Qantas Airways Limited is the national airline of Australia. The name was originally "QANTAS", an acronym/initialism for "Queensland and Northern Territory Aerial Services". Nicknamed "The Flying Kangaroo", the airline is based in Sydney, with its main hub at Sydney Airport.
Duopoly
D
Price
Quantity
Duoplolists have a big influence over price by differentiating their product using non-price competition.
They therefore face a downwards sloping demand curve
Monopoly
Has the following characteristicsOne firm known as a monopolistOne firm supplies the whole market or nearly
the whole market- has considerable influence on the price by varying quantity it supplies
Very strong barriers to entry and exit The product it sells has only one or no close
substitutes
Monopoly
KEY
Market
Firm
Monopoly: Examples
Tranz Rail Inter-island Ferry Postal delivery service: NZ post
Monopoly
D
Price
Quantity
A monopolist has a high degree over the price by restricting the quantity it sells.
Therefore it faces a downwards sloping demand curve
Monopsony Is the sole BUYER in a market
The market is dominated by one large firm that purchases the whole market supply or nearly the whole market
Able to have significant influence on the price by varying the quantity it purchases
Example: Fonterra
Fill in the gaps table
Perfect imperfect
Many, few, two, one
Homogenous, differentiated, no close substitues
None, weak strong