Presentation on theme: "Different industries have different market structures. Different market characteristics determine the relations among sellers, and relations between sellers."— Presentation transcript:
Different industries have different market structures. Different market characteristics determine the relations among sellers, and relations between sellers and buyers. The most important aspects of market structure are: 1. the degree of concentration of sellers in the industry 2. the degree of product differentiation 3. the ease or difficulty with which new sellers can enter the industry.
perfect competition – many producers of a single, unique good; (e.g. potatoes, onion) monopoly - single producer of an unique good ;(e.g. Poczta Polska, energy, water suppliers) monopolistic competition – many producers of slightly differentiated; goods (e.g. clothes, sweets, computers etc.) oligopoly – few producers, with a single or only slightly differentiated; good (e.g. cigarettes, cell phones, satelite TV)
It depends on how difficult it is to enter the market. That depends: on control of the necessary resources or inputs, government regulations, economies of scale, technological superiority. It also depends on how easy it is to differentiate goods: Soft drinks, economic textbooks, breakfast cereals can readily be made into different varieties in the eyes and tastes of consumers. Red roses are less easy to differentiate
many buyers and sellers, identical (also known as homogeneous) products, no barriers to either entry or exit, buyers and sellers have perfect information about market, In perfect competition, all producers are price takers, as they have to accept what the market says is the appropriate price and they cannot do anything to shift that price.
no individual firm can affect the market price demand curve facing each firm is perfectly elastic
produce where MR = MC
If price = minimum point on ATC curve, economic profit = 0. Owners receive normal profit. No incentive for firms to either enter or leave the market.
A perfectly competitive firm will produce at the level of output at which P = MC, as long as P > AVC.
Firms enter if economic profits > 0 market supply increases price declines profit declines until economic profit equals zero (and entry stops) Firms exit if economic losses occur market supply decreases price rises losses decline until economic profit equals zero
Perfectly competitive market is the only market structure, at which: P = minimum ATC Film
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