KINH TẾ VI MÔ Chapter 6 market structure

CHAPTER MARKET STRUCTURE Content Perfect competition Monopoly Monopolistic competition Oligopoly MARKET STRUCTURE Market - Where all activities in economy are price-led MARKET STRUCTURE MARKET STRUCTURE PERFECT COMPETITION IMPERFECT COMPETITION MONOPOLISTIC COMPETITION MONOPOLY OLIGPOLY MARKET STRUCTURE Types of market Number of suppliers Products Entry barrier Market power Non-price competition Perfect competition Monopolistic competition Oligopoly Monopoly Unlimited Several Few One Identical Different Identical/ Different Unique High Very high Strong Very strong None Low None Weak None Little Much None I PERFECT COMPETITION - Definition A type of market where there are unlimited suppliers and their products are identical - Examples: Agricultural products PERFECT COMPETITION Characteristics - Suppliers are price-taker No entry barrier No market power Symmetric information No non-price competition (no advertisement) Not necessary to choose supplier PERFECT COMPETITION Demand and marginal revenue curves - - - Demand curve: parallel with horizontal axis Marginal curve: coinciding with demand curve P P =MR = AR P* → MR = P = AR Q PERFECT COMPETITION Maximizing profit ΠMAX: MR=MC P MC In perfect competition: MR = P ⇒ ΠMAX in perfect competition: P=MR P* P=MC Q* PERFECT COMPETITION Break-even, shut down point Π = TR – TC = Q (P - ATC) P> ATCmin → Π > → profit P= ATCmin → Π = → break-even point P< ATCmin → Π < → loss AVCmin< P < ATCmin → continue producing P < AVCmin → shut down Q PERFECT COMPETITION Break-even, shut down point P P> ATCmin TR = P*AQ*O TC = OCBQ* → Π = P*ABC MC ATC Πmax A P* P=MR C B O Q* Q PERFECT COMPETITION Break-even, shut down point P MC P= ATCmin TR = P*AQ*O TC = P*AQ*O ⇒ Π = ⇒ Q*: break-even point A ATC P=MR P* O Q* Q PERFECT COMPETITION Break-even, shut down point P< ATCmin P MC ATC -Π B C TR = P*AQ*O TC = OCBQ* → - Π = P*ABC P=MR P* A O Q* Q PERFECT COMPETITION Break-even, shut down point AVCmin < P < ATCmin P MC ATC B C TR = P*AQ*O TC = OCBQ* * Continue: Lose - Π = P*ABC * Stop: Lose FC = BCEF ⇒ FC > - Π ⇒ Continue producing P* AVC A P=MR E F Q* Q PERFECT COMPETITION Break-even, shut down point P < AVCmin TR = P*AQ*O TC = OCBQ* * Continue: Lose - Π = P*ABC * Stop: Lose FC = BCEF FC < - Π → Stop producing (shut down point) P MC B ATC C AVC F E P* A P=MR O Q* Q PERFECT COMPETITION Supply curve P MC - Coinciding with MC, but from AVCmin P=MR P* AVC Q* Q PERFECT COMPETITION Producer’s surplus (PS) - The area below price line and above marginal cost curve P MC P=MR P* PS = TR – VC = Π + FC PS Q* EXERCISE Total cost function of a perfect competition firm is: TC = Q2 + Q + 100 a At P = 27$, state out Q* and ΠMAX b State out the break-even point of this firm c At P = 9$, should this firm close its business? d Show this firm’s supply curve Q MONOPOLY - - Definition A type of market where there is only one supplier and the product is unique Examples: Reasons of monopoly - Economy of scales Stipulated by government Owning patterns, license… Monopoly in inputs Monopoly in location MONOPOLY Demand and marginal revenue curves - Demand curve: downward sloping and relatively steep - Marginal revenue curve: downward sloping, is twice as steep as the slope of the demand curve (and the same intercept) P = -aQ + b MR = -2aQ + b P MR D Q MONOPOLY Maximizing profit P Πmax: MR=MC ΠMAX: MR=MC P*m MC ATC ΠMAX MR D Q*m Q MONOPOLY P Πmax: MR=MC P*m>>P*c Q*mP*c Q*m