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08
Pure Competition in the Short Run
McGrawHill/Irwin Copyright © 2012 by The McGrawHill Companies, Inc. All rights reserved.
Four Market Models
• Pure competition • Pure monopoly
• Monopolistic competition • Oligopoly
Pure Competition
Monopolistic Competition
Oligopoly
Pure Monopoly
Market Structure Continuum
LO1 8-2
Four Market Models Characteristics of the Four Basic Market Models
Characteristic Number of firms
Type of product
Control over price
Conditions of entry
Nonprice Competition
Examples
LO1
Pure Competition
A very large number
Standardized
None
Very easy, no obstacles
None
Agriculture
Monopolistic Competition
Many
Differentiated
Some, but within rather narrow limits
Relatively easy
Considerable emphasis on advertising, brand names, trademarks
Retail trade, dresses, shoes
Oligopoly Few
Standardized or differentiated
Limited by mutual inter-dependence; considerable with collusion
Significant obstacles
Typically a great deal, particularly with product differentiation
Steel, auto, farm implements
Monopoly One
Unique; no close subs.
Considerable
Blocked
Mostly public relation advertising
Local utilities
8-3
Pure Competition: Characteristics
• Very large numbers of sellers • Standardized product
• “Price takers”
• Easy entry and exit
• Perfectly elastic demand
•Firm produces as much or little as they want at the price
•Demand graphs as horizontal line
LO2 8-4
Average, Total, and Marginal Revenue
• Average Revenue •Revenue per unit •AR = TR/Q = P
• Total Revenue •TR = P X Q
• Marginal Revenue
•Extra revenue from 1 more unit •MR = ΔTR/ΔQ
LO3 8-5
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