Unit 2 - Ch 05- Adjusted

8/9/2019 Unit 2 - Ch 05- Adjusted

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Copyright © 2012 by McGraw-Hill Ryerson

Limited. ll rights reser!ed.

Understanding Economics6 th edition

by Mark Lovewell


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by Mark Lovewell

Chapter 5Perfect Competition

Copyright © 2012 by McGraw-Hill Ryerson Limited !ll rights reser"ed


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Learning #b$ecti"es!%ter this chapter yo& will be able to'1 disting&ish the %o&r mar(et str&ct&res) and

the main di*erences among them2 &nderstand the pro+t-ma,imi ing r&le and

how per%ect competitors &se it in the shortr&n

. identi%y how per%ect competiti"e mar(etsad$&st in the long r&n) and the bene+ts theypro"ide to cons&mers

Copyright © 2012 by McGraw-Hill RyersonLimited. ll rights reser!ed.


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Mar(et /tr&ct&res here are %o&r main mar(et str&ct&res'per%ect competition

monopolistic competitionoligopolymonopoly



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er%ect Competitioner%ectly competiti"e mar(ets ha"e threemain %eat&res'

many b&yers and sellersa standard prod&cteasy entry and e,it



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MonopolisticCompetitionMonopolistically competiti"e mar(ets ha"e

three main %eat&res'many b&yers and sellersslightly di*erent prod&ctseasy entry and e,it



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#ligopoly and Monopolyn an oligopoly a %ew b&sinesses 3protected byentry barriers4 pro"ide standard or similarprod&ctsn a monopoly a single b&siness 3protected byentry barriers4 pro"ides a prod&ct with noclose s&bstit&tes



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ntry 6arriers here are si, main entry barriers in oligopoliesand monopolies'

increasing ret&rns to scalemar(et e,periencerestricted ownership o% reso&rceslegal obstacles 3s&ch as patents4

mar(et ab&ses 3s&ch as predatory pricing4ad"ertising 3which is most common inoligopolies4



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Mar(et owerMar(et power'is a b&siness7s ability to a*ect the price itcharges"aries with mar(et str&ct&re) s&ch thatmonopolists ha"e the most and per%ectcompetitors ha"e the least



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!ttrib&tes o% Mar(et /tr&ct&res8ig&re 5 1) age 119


:&mbers o% 6&sinesses

ype o% rod&ct

ntry and ,it o% :ew 6&siness

Mar(et ower

,ample

PerfectCompetitio

n

"ery many

standard

"ery easy

none

%arming

Monopolistic

Competition

many

di*erentiated

%airly easy

some

resta&rants

Oligopoly

%ew

standard ordi*erentiated

di;c&lt

some

a&tomobileman&%act&rin

g

Monopoly

one

notapplicable

"erydi;c&lt

great

p&blic&tilities


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er%ect Competitor7s


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er%ect Competitor7s


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!"erage and MarginalRe"en&e otal re"en&e is &sed to +nd two other

re"en&e concepts'a"erage re"en&e 3total re"en&e di"ided byo&tp&t4marginal re"en&e 3change in total re"en&edi"ided by change in o&tp&t4



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Re"en&e Conditions %or a er%ect

Competitor!"erage re"en&e e=&als price) so that aper%ect competitor7s a"erage re"en&e c&r"e isits hori ontal demand c&r"e! per%ect competitor7s a"erage re"en&e3price4 is constant so that marginal re"en&eand a"erage re"en&e are always e=&al



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Re"en&es %or a er%ect Competitor8ig&re 5 .) page 122


>--?????

'evenue Curves for Pure $n% Simple T-Shirts

0

6

Quantity of T-Shirts per Day

" p e r

T - S

h i r t

D&( )' ( M'

> 0@0

2002502A02@0

> 0B@0

120015001?201?@0

B@0 @0 D > ?A20 120 D ?

.00 50 D ?120 20 D ?

?0 10 D ?

B@0 @0 D > ?1200 200 D ?1500 250 D ?1?20 2A0 D ?1?@0 2@0 D ?

Pri e!P#

!" per T-shirt#

'evenue S hedules for Pure $n% Simple T-Shirts

Quantity!*#

!T-Shirts per day#

Total 'evenue!T'#

!P + *#

Mar,inal 'evenue!M'#

! T'. *#

)vera,e 'evenue!)'#

!T' + *#


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he ro+t-Ma,imi ing#&tp&t R&le he pro+t-ma,imi ing o&tp&t r&le states that

pro+t is ma,imi ed when marginal re"en&ee=&als marginal cost his means'

o&tp&t sho&ld be increased i% marginal re"en&ee,ceeds marginal costo&tp&t sho&ld be decreased i% marginal coste,ceeds marginal re"en&e



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he 6rea(e"en and /h&tdown oints

he brea(e"en point is where a b&sinessbrea(s e"en while ma,imi ing pro+t

8or a per%ect competitor this occ&rs where pricee=&als minim&m a"erage cost

he sh&tdown point is the lowest price atwhich a b&siness will choose to operate in theshort r&n

t occ&rs where price e=&als minim&m a"erage"ariable cost



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! er%ect Competitor7s /&pply C&r"e

! per%ect competitor7s s&pply c&r"e is itsmarginal cost c&r"e abo"e the sh&tdownpoint

he mar(et s&pply c&r"e can be %o&nd byhori ontally adding the s&pply c&r"es %or allthe b&sinesses in the ind&stry



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/&pply C&r"e %or a er%ect Competitor 8ig&re 5 5) page 12?


Supply Curve for Pure $n% Simple T-Shirts

0

".00


" p e r

T - S

h i r t

%.00

2$0

1.#01."0

200 2"0

a

b

c

d

MC!(S

M'

)CM' 2

)/C

Supply S hedule for Pure $n% Simple T-Shirts

rice3 4

3> per -/hirt

E&antity/&pplied

3=43 -/hirts per day4

>? 005 001 501 B0

2A0250200

0


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/&pply C&r"es %or a er%ectly Competiti"e6&siness and Mar(et 8ig&re 5 ?) page 12A


Supply Curve for Pure $n% Simply T-Shirts

0

5 00


P r i e

! " p e

r T - S

h i r t # ? 00

2A02"0200

1 50

0

Supply Curve for T-Shirt Market

5 00

&'antity o( )-*hirts per +ay

P r i e

! " p e

r T - S

h i r t #

? 00

2A 00025 00020 000

1 50

>? 005 001 50

2A0250200

2A 00025 00020 000

3usiness and Market Supply S hedules for T-Shirts

rice3 4

3> per -/hirt4

E&antity /&pplied3=43/ b4

3E43/ m 4

3 -/hirts per day4

S b S m


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er%ect Competition in the Long R&n

ntry and e,it by b&sinesses in the long r&ndri"es a per%ectly competiti"e mar(et to thebrea(e"en point

6&sinesses enter mar(ets where economicpro+ts are made so that s&pply shi%ts right andprice %alls6&sinesses lea"e mar(ets where economiclosses are made so that s&pply shi%ts le%t andprice rises



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Long-R&n =&ilibri&m %or a er%ectlyCompetiti"e 6&siness 8ig&re 5 A) page 129


T-Shirt Market

0


" p e r

T - S

h i r t

,0 0002$ 0002" 000

"

?

Pure $n% Simply T-Shirts

0

"


" p e r

T - S

h i r t

?

2$02"0

M

MC

!C

a

b

" #

S #

S $

" $

d

ec


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he 6ene+ts o% er%ect Competition

er%ectly competiti"e mar(ets in long-r&ne=&ilibri&m meet two conditions that bene+tcons&mers'

minim&m-cost pricing 3price D minim&ma"erage cost4marginal-cost pricing 3price D marginal cost4



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How Reso&rce Mar(ets #perate

Marginal rod&cti"ity heory he demand %or reso&rces is based on thedemand %or the prod&cts that these reso&rcesare &sed to prod&ce!ccording to marginal prod&cti"ity theory)b&sinesses &se reso&rces based on how m&che,tra pro+t each o% these reso&rces pro"ides


H R & M (


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How Reso&rce Mar(ets#perate

he


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How Reso&rce Mar(ets #perate he ro+t-Ma,imi ing mploymentR&le

he pro+t-ma,imi ing employment r&le statesthat pro+ts are ma,imi ed when marginalre"en&e prod&ct e=&als marginal reso&rcecost

Marginal re"en&e prod&ct is the change in totalre"en&e when employing a new &nit o% areso&rceMarginal reso&rce cost is the change in total costwhen employing a new &nit o% a reso&rce



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How Reso&rce Mar(ets #perateLabo&r


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How Reso&rce Mar(ets#perateMar(et


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How Reso&rce Mar(ets #perate

p e r

h o & r 4

2

?

1B

1@

5000


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Unit 2 - Ch 05- Adjusted