Price Discrimination Price discrimination exist when sales of identical goods or services are transacted at different prices from the same provider Example of price discrimination : Palestinian Studies Course at the Islamic University.

Ch 7 : Industrial Organization in Different Markets Perfect competition market

Major Markets forms Perfect Competitions : The market consists of a very large number of small firms producing product in the same domain. No one, whether a consumer or a producer can affect the price.

Major Markets forms Monopolistic Competitions : it is when there are large producers sell products that are differentiated from one another as goods but not perfect substitutes. differentiatedsubstitutes The number of producers is lower than in the case of perfect competition market.

Major Markets forms Oligopoly : is a market form in which a market is dominated by a small number of sellers (oligopolists).market form market The number of producers is lower than in the case of monopolistic competition market. The sellers can affect the price using different ways.

Oligopsony (Buyrs’ Oligopoly): is a market form in which the number of buyers is small while the number of sellers in theory could be large.market form This typically happens in a market for inputs where numerous suppliers are competing to sell their product to a small number of (often large and powerful) buyers.

Monopoly: It is when there is only one provider of product or service. So the monopolistic firm can determine either price or quantities in the market, and is able to make higher profit than other types of markets like perfect competition market.

Natural Monopoly: A monopoly in which economies of scale causes efficiency to increase continuously with the size of the firm. This will happen in the case of the natural resources or new technology.

Monopsony: is a market form in which only one buyer faces many sellers.market form For example one firm buys raw materials from so many sellers.

Buyers numbers Buyers Entry barriers Sellers numbers Sellers Entry barriers Market Structure ManyNoManyNoPerfect Competition ManyNoManyNoMonopolistic Competetion ManyNoFewYesOligopoly FewYesManyNoOligopsony ManyNoOneYesMonopoly OneYesManyNoMonopsony

Perfect Competition market : 1.Atomicity : It means there are large number of small producers and consumers on a given market, each so small that its actions have no significant impact on others. ( Price taker ).

2. Goods are perfect substitutes: The goods are homogeneous without any differences. 3. Perfect Complete Information : All firms and consumers know the prices set by all firms. There is one price for the good in the market. Equal access : There are no barriers to get technology

4. Equal access : All firms have access to production technologies and resources ( including information ) are perfectly mobile. This means there are no barriers in the market

5. Free Entry and Exit: Any firm may enter or exit the market as it wishes at any time without any barriers. 6. Transaction and fees costs are zero This means that there is no transaction cost or fees for all operations in the perfect competition market.

7. The price is determined at the level that supply intersects demand curves. The firm is a price taker In general, none of the condition above will be applied in the real markets.

The Equilibrium in the short Run in the perfect competition market 1. The totals Approach ( TR, TC )

Economic Profits TR TC Slope = MC Slope = MR a b If MR = MC Profit maximization when MC increases If MR ˃ MC the firm should increase its production If MR ˂ MC the firm should decrease its production

The Equilibrium in the short Run in the perfect competition market 2. The Average Approach ( AR, AC )

© 2001 Claudia Garcia-Szekely19 Economic Profits MC AVC ATC P=MR ATC AVC Profit Max Output level = q*

© 2001 Claudia Garcia-Szekely20 Economic Profits MC AVC ATC P=MR ATC AVC q* Profit Max Output level VC FC TC AVC x Q = VC AFC x Q = FC ATC x Q = TC P TR P x Q = TR Profit TR – TC = Profit

© 2001 Claudia Garcia-Szekely21 Breaking Even MC AVC ATC P = MR P q* Profit Max Output level AVC VC ATC = P TC = TR No loss or profit TC TR

© 2001 Claudia Garcia-Szekely22 MC AVC ATC P = MRP q* Profit Max Output level AVC VC ATC TC Economic Losses LOSS TR

Shut down Decisions in the Perfect Competition Market

© 2001 Claudia Garcia-Szekely24 If TR > TVC MC AVC ATC P = MRP q* Profit Max Output level AVC VC ATC FC TR LOSS

© 2001 Claudia Garcia-Szekely25 If TR < TVC MC P=MR ATC AVC q* Profit Max Output level P Revenues are not enough to cover the variable cost Loss > FC LOSS VC TC FC TR Loss when producing q* is larger than the FC

© 2001 Claudia Garcia-Szekely26 If price falls below AVC, producing at MC=MR will generate losses greater than fixed costs. P = minimum AVC is called the firm’s shutdown point. The firm minimizes its losses by producing zero units. Shut Down P Shutdown point

The Equilibrium in the Long Run in the perfect competition market

When firms enter attracted by profits Supply shifts right P0 MR 0 ATC MC Profit D S0S0 S1S1 P1 MR 1 q0q0 q1q1 Zero Profit Price drops Firms will enter until profits are zero Firms will produce at the lowest ATC