Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
L-13, MM Market structures between perfect competition and pure monopoly Monopolistic competition Examples Characteristics 1. Numerous sellers and buyers 2. Heterogeneous products 3. Free entry and exit 4. Perfect information The only difference between the monopolistic competition and prefect competition is in the nature of the goods produced. Heterogeneity implies each firm’s product has some uniqueness, or somewhat special. The demand for the firm’s product is downward sloping. P D 0 Qi 1 Competition and the incentive to advertise. P D 0 Qi Hypothetical case: A McDonald’s restaurant The Short-run Equilibrium. P MC ATC Short-run profit P D 0 Q* Q for Big Mac MR 2 The Long-run case Free Entry and Exit Positive profits made by the incumbent McDonald’s will attract more firms into the industry. Thus pushing the demand for Big Mac inward. P D 0 Q of Big Mac The Long-Run Equilibrium P MC ATC P = ATC D 0 Q Q* MR 3 In the long run: MC = MR P = ATC which implies profit = 0. What happens if the incumbent firms are running losses Remarks on the monopolistic competition: 1. Excessive capacity Not at the minimum ATC 2. Inefficiency Not at the point where MU = MC 3. Yet it provides a variety of goods and offer a wide range of choice, which benefits consumers. Oligopoly Characteristics 1. A few firms in the industry 2. Heterogeneous goods 3. Some barriers of entry 4. Information may not be perfect (especially about the rival’s goods) Examples: 1. Airline companies 2. Automobile 3. Steel 4. Camera films. 5. Oil etc. They are usually big companies. 1. Interdependence 2. Heterogeous products. 4 A subdiscipline in Economics: Industral Organization Game Theory Kinked Demand Curve Model Explaines the price rigidity in the oligopolistic market P D Qi* Qi The firm will set the price of its product at P, at the kink, and produce Q*. Because the possible reactions of its rivals: If it raises the price above P, the quantity of sales will fall substantially. If it cuts the price below P, the quantity of sales will not increase significantly. It is wise for the firm to stick to price P, even as the input prices fluctuate. 5