1. Structures Market Structures Perfect Competition

2. Alternative Market Structures  Classifying markets by degree of competition  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

3. Features of the four market structures

4. Perfect Competition  Assumptions  large number of firms  firms are price takers  freedom of entry and exit  identical products  perfect knowledge  Distinction between short and long run  Short-run equilibrium of the firm  P = MC  possible supernormal profits

5. O (a) Industry P Q (millions)‏ S D PePe MC AR D = AR = MR QeQe AC Short-run equilibrium of industry and firm Firm is a price taker. Price is given by the market.

6. QeQe P1P1 D 1 = AR 1 = MR 1 AR 1 OO (a) Industry P Q (millions)‏ S D (b) Firm MC AC Q (thousands)‏ Loss is minimised where MC = MR. Loss minimising under perfect competition

7. Short-run shut-down point OO (a) Industry P P2P2 Q (millions)‏ S D2D2 (b) Firm AR 2 D 2 = AR 2 = MR 2 MC AC AVC Q (thousands)‏

8. 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 Deriving the short-run supply curve

9.  Short-run supply curve of industry  Long-run equilibrium of the firm  all supernormal profits competed away Perfect Competition

10. OO (a) Industry P Q (millions)‏ S1S1 D (b) Firm LRAC PLPL P1P1 QLQL SeSe AR 1 D1D1 AR L DLDL Q (thousands)‏ Long-run equilibrium under perfect competition New firms enter Supernormal profits Profits return to normal MC

11. Q O (SR)AC (SR)MC LRAC AR = MR DLDL LRAC = (SR)AC = (SR)MC = MR = AR Long-run equilibrium of the firm

12.  Short-run supply curve of industry  Long-run equilibrium of the firm  all supernormal profits competed away  long-run industry supply curve Perfect Competition

13. P Q O Various long-run industry supply curves under perfect competition Long-run S S1S1 D1D1 S2S2 D2D2 a b c (a) Constant industry costs

14. Long-run S P Q O S1S1 D1D1 S2S2 D2D2 a Various long-run industry supply curves under perfect competition b c (b) Increasing industry costs: external diseconomies of scale

15. Long-run S P Q O S1S1 D1D1 S2S2 D2D2 a Various long-run industry supply curves under perfect competition b c (c) Decreasing industry costs: external economies of scale

16.  Short-run supply curve of industry  Long-run equilibrium of the firm  all supernormal profits competed away  long-run industry supply curve  Incompatibility of economies of scale with perfect competition Perfect Competition

17.  Short-run supply curve of industry  Long-run equilibrium of the firm  all supernormal profits competed away  long-run industry supply curve  Incompatibility of economies of scale with perfect competition  Does the firm benefit from operating under perfect competition? Perfect Competition

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