Prepared by: Behzod Alimov MDIS Tashkent. Assumptions o firms are price takers o complete freedom of entry o identical (‚homogeneous‘) products o perfect.

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Presentation transcript:

Prepared by: Behzod Alimov MDIS Tashkent

Assumptions o firms are price takers o complete freedom of entry o identical (‚homogeneous‘) products o perfect knowledge of the market

(b) Firm (a) Industry Q (thousands) O £ MC AR D = AR = MR QeQe AC Q (millions) O P S D PePe Firm is a price taker. Price is given by the market.

A.marginal cost is less than price. B.price exceeds marginal revenue. C.marginal revenue equals average revenue. D.marginal cost exceeds marginal revenue. E.marginal cost equals marginal revenue.

(b) Firm (a) Industry Q (thousands) O £ MC AR D = AR = MR QeQe Q (millions) O P S D PePe AC Loss is minimised where MC = MR.

OO (a) Industry P£ P1P1 Q (millions) S D1D1 (b) Firm D 1 = MR 1 MC P2P2 D 2 = MR 2 D2D2 P3P3 D 3 = MR 3 D3D3 Q (thousands) a b c = S

OO (a) Industry P£ Q (millions) S1S1 D (b) Firm LRAC PLPL P1P1 QLQL SeSe AR 1 D1D1 AR L DLDL Q (thousands) Supernormal profits New firms enter Profits return to normal

£ Q O (SR)AC (SR)MC LRAC AR = MR DLDL LRAC = (SR)AC = (SR)MC = MR = AR

Barriers to entry o economies of scale o economies of scope o product differentiation and brand loyalty o lower costs for an established firm o ownership/control of key factors o ownership/control over outlets o legal protection o mergers and takeovers o aggressive tactics

A.An upward-sloping long-run average cost curve. B.Patents on key processes. C.Substantial economies of scale. D.Large initial capital costs. E.The threat of takeover by the existing firm(s).

£ Q O MC AC QmQm MR AR AC AR Total profit

£ Q O MC Q1Q1 MR P1P1 P2P2 Q2Q2 AR = D ( = supply under perfect competition)

 Sloman, J. and D. Garratt (2013): Essentials of Economics, 6 th edition, Pearson.  Mankiw, N.G. (2012): Essentials of Economics, 6 th edition, South-Western.