Presentation on theme: "Competition and the Market Chapter 7. The function of Price Price brings quantity supplied in line with quantity demanded. As a good becomes relatively."— Presentation transcript:
$ MC MR = D = P = P Quantity ATC Q*Q*Q*Q* P*P*P*P*
Profit $ MC MR = D = P = P Quantity ATC Q*Q*Q*Q* P*P*P*P*
Profit Price - ATC = Profit per unit of output Note: Price < ATC indicates a loss
Profit It is important to note that profit in a perfectly competitive market will lead to firms wanting to enter that market If enough firms enter, then the market supply curve will shift to the right.
The Growth of Firms Internal Growth External Growth
The Growth of Firms Horizontal Mergers Combinations of firms in the same industry Vertical Mergers Two or more firms in different production or marketing stages within the same industry. Conglomerate mergers Combinations of firms in unlike industries
Antitrust Laws Sherman Antitrust Act Section 1 makes it Illegal to act in restraint of trade Section 2 makes it illegal to monopolize interstate trade, forbidding the use of economic power.
Agricultural Bargaining The more the market is concentrated, the more power the larger firms have. A large number of farmers facing a single buyer could be an example. Farmers can resolve this situation by organizing themselves into an agricultural bargaining group.
Agricultural Bargaining Clayton Act started the process of giving farm groups immunity from Sherman Act. These farm groups must form as non-profit groups, and could not have capital stock.
Agricultural Bargaining Capper Volstead Act of 1922 was sought to clarify that section of the Clayton act that applied to agriculture. CV 1922 provided stock or nonstock corporations to operate provided: They operated for the mutual benefit of their membership They did not deal in the products of non-members to an amount greater in value than such as are handled by it for its members. No member is allowed more than one vote Association does not pay dividends on stock or membership capital in excess of 8 percent a year. They cant use their market power to enhance prices.