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Four marker models - Coggle Diagram
Four marker models
Monopolistic competition
Some control over price
Relatively easy entry
Considerable emphasis on advertising to achieve non-price competition
Many firms
Small market shares
No collusion
Independent action
Differentiated product
Service: Conditions surrounding the sale of a product
Location: Accessibility of store
Product attributes: Physical/Unique differences
Brand names and packaging: Trademarks and celebrity endorsements
Pure competition
No price control
Price takers (Individual firm)
Very easy entry
Standardized product
No non- price competition
Large number of firms
Market: Price makers
40% : Four-firm concentration ratio
Oligopoly
Limited control over price
Significant obstacles to enter
Standardized/Differentiated product
Few firms
Typically a great deal of non-price competition
40% Four-firm concentration ratio
Pure Monopoly
Considerable control over price
Blocked entry
Unique product
One firm
Non-price competition due to public relations advertising
Efficiencies
Allocative: P=MC: The right amount of scarce resources devoted
Productive: P=minimum ATC: Goods produced in least costly way
Economic: P=MC=minimum ATC
Result in product variety benefits if inefficient
Wide diversity of tastes to consumers
Wide diversity of choice for consumers
Better products provided to society due to improvement on products due rivals
Profit maximization for all markets
Three questions
If so, in what amount?
What economic profit/loss will we realize?
Should we produce this product?
Marginal-Revenue-Marginal-Cost Approach
Total-Revenue-Total-Cost Approach
Causes shifts of marginal cost curve due to changes in supply
Technology
Prices of variable inputs
Degree of industry concentration: Extent to which largest firms account for industry outputs
Four-firm concentration ration expressed as percentage
Four-firm concentration ratio = (Output of four largest firms) / (Total output in the industry)
Herfindahl index
Sum of squared percentage market shares of all firms in the industry
Maximum: 10 000: SInglefirm
Approach zero in purely competitive market
Market equilibrium
Total quantity supplied = Total quantity demanded
Fallacy of competition
A logical pitfall when you assume what is true for individual firm is true for the market/group
Profit=(Price - Average Total Cost) x Quantity
Total Revenue = Price X Quantity