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ECN 104 (449)
Lecture

Perfect Competition

37 Pages
151 Views

Department
Economics
Course Code
ECN 104
Professor
Halis Yildiz

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CHAPTER7:PERFECTCOMPETITION
Part Two: Microeconomics of Product Markets
Thefourbasicmarketstructures
Theconditionsrequiredforperfectlycompetitivemarkets
Hfi ift titi ii fit ii i l
H
ow
fi
rms
i
nper
f
ec
t
compe
titi
onmax
i
m
i
zepro
fit
sorm
i
n
i
m
i
ze
l
osses
Whythemarginalcostcurveandsupplycurveofcompetitivefirmsarethesame
Aboutthefirm’sprofitmaximizationinthelongrun
About the efficiency of competitive markets
About
the
efficiency
of
competitive
markets
FourMarketStructures
Perfectcompetition:isamarketstructurecharacterizedbyaverylargenumberoffirms
producing astandardized product (that is aproduct identical to that other producers such
producing
a
standardized
product
(that
is
,
a
product
identical
to
that
other
producers
,
such
ascornandcucumbers).Inthelongrun,newfirmscanenterandtheexistingfirmsexistthe
industryveryeasily.
l
Monopo
l
y:isamarketstructureinwhichonefirmisthesolesellerofaproductorservice(
aregionalelectricalpowersupplier).Sincetheentryofadditionalfirmisblocked,onefirm
constitutestheentireindustry.Themonopolistproducesauniqueproduct,soproduct
differentiation is not an issue.
differentiation
is
not
an
issue.
Monopolisticcompetition:isamarketstructurecharacterizedbyaverylargenumberof
firmsproducingdifferentiatedproducts.Inthelongrunentryisveryeasy
Oligopoly:
amarket structure in which afew large sellers produce and sell homogenous or
Oligopoly:
a
market
structure
in
which
a
few
large
sellers
produce
and
sell
homogenous
or
differentiatedproducts:eachfirmisaffectedbythedecisionsofitsrivalsandmusttake
thosedecisionsintoaccountwhendeterminingitsownpriceandoutput.Entryisrelatively
hard.
Perfect
Competition
Mono
p
olistic
Monopoly
Imperfect Competition
Market Structure Continuum
Competition
p
Competition
Monopoly
MarketModel:CharacteristicsoftheFourMarketStructures
Characteristic Perfect
Competition Monopolistic
Competition Oligopoly Monopoly
Number of
Firms A very large
number Many Few One
Type of
Product Standardized Differentiated Standardized
Or Differentiated Unique; no
close
btitt
su
b
s
tit
u
t
es
Control over
None
Some within
Limited by mutual
Considerable
Control
over
Price
None
Some
within
rather narrow
limits
Limited
by
mutual
interdependence;
considerable with
collusion
Considerable
Cditi f
V
Rlti l
Si ifi t
Bl k d

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Description
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