大一商科學(xué)術(shù)大禮包ibe課件lecture

1、Lecture EightMarket Structures and Perfect CompetitionIntroduction to Business EconomicsIntroductionAn introduction to Market StructuresBehaviour of firms and how they competeRole of GovernmentPerfect CompetitionOrganised and Dis-organised marketsSome markets seem to spring up from nowhereSome marke

2、ts are highly organised.What is Market Structure?Market structure is the organisational and other characteristics of a market,We tend to focus on those characteristics of a market which affect the degree of competition between firms and their pricing decisions.Traditionally we emphasise:The number a

3、nd size of buyers and sellersThe existence or absence of barriers to entry and exitMarket StructureMarket structure identifies how a market is made up in terms of:The number of firms and buyers in the industryThe nature of the product produced homogenous (identical), differentiated?The degree to whi

4、ch the firm and buyer can influence priceBarriers to entryProfit levelsMarket StructuresMarket structures are often classified according to the degree of competition in the industry:High levels of competition Perfect CompetitionLimited competition MonopolyDegrees of competition inbetween Monopolisti

5、c competition, OligopolyMarket StructurePerfect CompetitionPure MonopolyMonopolistic CompetitionOligopolyDuopolyMonopolyThe further right on the scale, the less competitive is the market (greater degree of imperfection).The further left on the scale, the more competitive is the market (lower degree

6、of imperfection).Features of market structures .ImportantMarket PowerMarket power refers to the degree to which firms have power and influence over their markets.Market power is exercised by firms that:face little competition; can prevent ers from entering their market; can differentiate their produ

7、cts from those of their rivals. EntryEntry into an industry or to a segment of an industry occurs because it is profitable.Entry usually occurs throughtakeover from outside the industrythe development of technologically similar firms who develop their product range.the transference of brand names ac

8、ross sectors an increase in import penetration. Again, the scale of the firm involved is important here.Barriers to EntryStructural barriers due to differences in production costs and being in the market for some timeEconomies of scale (e.g. Natural monopoly)Vertical integration (e.g. Backwards and

9、forwards)Control of essential resources e.g. technologies / commoditiesExpertise and reputation of the incumbentBrand loyaltyInherent suspicion among consumers about new ideasStrategic barriers: Predatory pricing / limit pricing Barriers to EntryStatutory (legal) barriers - entry barriers given forc

10、e of law Licences (e.g. Professional qualifications) Patents Copyrights Public franchises Tariffs, quotas and other trade restrictionsPower through Patents Patents Government enforced property rights Generally valid for 12-20 years they give the owner an exclusive right to prevent others from copyin

11、g patented products, inventions, or processes.A patent should protect your intellectual property.Patent licences can be sold to other producersDesigned to encourage innovation and inventionThe role of GovernmentThe role of Government: Assessing the Behaviour of FirmsHow does market structure affect

12、pricing, output and other decisions of businesses within the market Are there dominant firms? Is there evidence of petitive behaviour? Collusive pricing agreements Predatory pricing? How important is non-price competition in the market? Is there interdependence between firms?Reducing entry barriersR

13、emoval of statutory entry barriers e.g. the liberalisation of markets.Enforcing the rules- punishing illegal anti competitive behaviour of firms. Price Fixing and Government InterventionThe UK Office of Fair Trading (OFT) gave out the largest ever total fine in a case under the UK Competition Act 19

14、98 in April 2010. The fine was being imposed on two tobacco manufacturers and ten retailers engaged in illegal price fixing for tobacco products in the UK. 2013 Cengage LearningFIRMS IN COMPETITIVE MARKETS(Perfect Competition)WHAT IS A COMPETITIVE MARKET?A competitive market has many buyers and sell

15、ers trading identical products so that each buyer and seller is a price taker.Buyers and sellers must accept the price determined by the market.The Meaning of CompetitionA perfectly competitive market has the following characteristics:There are many buyers and sellers in the market.The goods offered

16、 by the various sellers are largely the same.Firms can freely enter or exit the market.The Meaning of CompetitionAs a result of its characteristics, the perfectly competitive market has the following es:The actions of any single buyer or seller in the market have a negligible impact on the market pr

17、ice.Each buyer and seller takes the market price as given. Hence they are price takerThe Revenue of a Competitive FirmTotal revenue for a firm is the selling price times the quantity sold.TR = (P Q)Total revenue is proportional to the amount of output.The Revenue of a Competitive FirmAverage revenue

18、 tells us how much revenue a firm receives for the typical unit sold.Average revenue is total revenue divided by the quantity sold.The Revenue of a Competitive FirmIn perfect competition, average revenue equals the price of the good.The Revenue of a Competitive FirmMarginal revenue is the change in

19、total revenue from an additional unit sold.MR =TR/QFor competitive firms, marginal revenue equals the price of the good.So why in Competitive Market, P=MR=AR ?Total, Average and Marginal Revenue for a Competitive FirmPROFIT MAXIMIZATION AND THE COMPETITIVE FIRMS SUPPLY CURVEThe goal of a competitive

20、 firm is to maximize profit.This means that the firm will want to produce the quantity that maximizes the difference between total revenue and total cost.Remember: P = R - CProfit Maximization: A Numerical ExampleThe Marginal Cost-Curve and the Firms Supply DecisionProfit maximization occurs at the

21、quantity where marginal revenue equals marginal cost.When MR MC, increase QWhen MR MC, decrease QWhen MR = MC, profit is maximized.Profit Maximization for a Competitive FirmMarginal Cost as the Competitive Firms Supply CurveMeasuring Profit in Our Graph for the Competitive FirmProfit = TR TCProfit =

22、 (TR/Q TC/Q) x QProfit = (P ATC) x QProfit as the Area between Price and Average Total CostTHE SUPPLY CURVE IN A COMPETITIVE MARKETThe competitive Firm Supply curve is the marginal-cost curve (MC).THE SUPPLY CURVE IN A COMPETITIVE MARKETMarket Supply equals the sum of the quantities supplied by the

23、individual firms in the market. The Short Run: Market Supply with a Fixed Number of FirmsFor any given price, each firm supplies a quantity of output so that its marginal cost equals price.The market supply curve reflects the individual firms marginal cost curves. Short-Run Market SupplyThe Long Run

24、: Market Supply with Entry and ExitFirms will enter or exit the market until profit is driven to zero.In the long run, price equals the minimum of average total cost.The Long Run: Market Supply with Entry and ExitAt the end of the process of entry and exit, firms that remain must be making zero econ

25、omic profit.The process of entry and exit ends only when price and average total cost are driven to equality.Long-run equilibrium must have firms operating at their efficient scale.Why Do Competitive Firms Stay in Business If They Make Zero Profit?Profit equals total revenue minus total cost.Total c

26、ost includes all the opportunity costs of the firm.In the zero-profit equilibrium, the firms revenue compensates the owners for the time and money they expend to keep the business going.Because a competitive firm is a price taker, its revenue is proportional to the amount of output it produces.The price of the good equals both the firms average revenue and its marginal revenue.SummaryTo maximize profit, a firm chooses the quantity of output such that marginal revenue equals marginal cost. This is also the quantity at which price equals marginal cost.Therefore, the firms marginal cost cur