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Lecture Element of economics - Chapter 8: Market structures. The topics discussed in this chapter are: the degree of competition, perfect competition, monopoly, monopolistic competition, oligopoly. | Market Structures The Degree of Competition Classifying markets number of firms freedom of entry to industry nature of product nature of demand curve The four market structures perfect competition monopoly monopolistic competition oligopoly Features of the four market structures Features of the four market structures Features of the four market structures Features of the four market structures Features of the four market structures Features of the four market structures The Degree of Competition Classifying markets number of firms freedom of entry to industry nature of product nature of demand curve The four market structures perfect competition monopoly monopolistic competition oligopoly Structure conduct performance Perfect Competition Assumptions firms are price takers freedom of entry identical products perfect knowledge Short-run equilibrium of the firm price, output and profit O £ (b) Firm Q (thousands) O (a) Industry P Q (millions) S D Pe MC AR D = . | Market Structures The Degree of Competition Classifying markets number of firms freedom of entry to industry nature of product nature of demand curve The four market structures perfect competition monopoly monopolistic competition oligopoly Features of the four market structures Features of the four market structures Features of the four market structures Features of the four market structures Features of the four market structures Features of the four market structures The Degree of Competition Classifying markets number of firms freedom of entry to industry nature of product nature of demand curve The four market structures perfect competition monopoly monopolistic competition oligopoly Structure conduct performance Perfect Competition Assumptions firms are price takers freedom of entry identical products perfect knowledge Short-run equilibrium of the firm price, output and profit O £ (b) Firm Q (thousands) O (a) Industry P Q (millions) S D Pe MC AR D = AR = MR Qe AC AC Short-run equilibrium of industry and firm under perfect competition Qe P1 D1 = AR1 = MR1 AR1 O O (a) Industry P £ Q (millions) S D (b) Firm MC AC AC Q (thousands) Loss minimising under perfect competition Perfect Competition Assumptions firms are price takers freedom of entry identical products perfect knowledge Short-run equilibrium of the firm price, output and profit The short-run supply curve of the firm Perfect Competition Long-run equilibrium of the firm all supernormal profits competed away LRAC = AC = MC = MR = AR O O (a) Industry P £ Q (millions) S1 D (b) Firm LRAC PL P1 QL Se AR1 D1 ARL DL Q (thousands) Long-run equilibrium under perfect competition New firms enter Supernormal profits Profits return to normal £ Q O (SR)AC (SR)MC LRAC AR = MR DL LRAC = (SR)AC = (SR)MC = MR = AR Long-run equilibrium of the firm under perfect competition Perfect Competition Incompatibility of economies of scale with perfect competition Benefits of perfect competition
