PERFECT AND IMPERFECT COMPETITION. CHAPTER 10 & 13

PERFECT AND IMPERFECT COMPETITION.
CHAPTER 10 & 13

PERFECT COMPETITION.

Very large numbers of sellers,Standarized product,Price takers, Easy entry and exit.

Purely Competitive Demand:

Perfectly elastic demand, Firm produces as much or little at market price, Demand graphs are HORIZONTAL .

AR = TQ/Q = P

TR = PxQ

MR = CHANGE IN TR/CHANGE IN Q

MR is extra revenue from 1 more unit produced.

PROFIT MAXIMISATION

This is where TR is greater than TC

or where MC = MR

Break-even point is where TR = TC

Loss Minimising case

Still produce as MR is greater than AVC and losses at MR = MC

Shutdown point is where P is less than minimum AVC

MONOPOLISTIC COMPETITON

Relatively large number of sellers. Product differentiation,Easy entry and exit, Nonprice competition.

Nonprice competition such as packaging, advertising, branding etc

Achieves Normal profit in the LONG RUN.

Cannot achieve productive efficiency or allocative efficiency as EXCESS CAPACITY OCCURS.

HERFINDAHL INDEX- sums up sqares of % of market shares in aLL firms.

FOUR-FIRM CONCENTRARTION RATIO - measures the % of total industry output accounted by largest 4 Firms.

BASIC MARKET MODELS : PURE COMPETITON,PURE MONOPOLY, MONOPOLSTIC COMPETITON AND OLIGOPOLY