BUSS1040 Lecture Notes - Lecture 4: Market Power, Sunk Costs, Insulin Receptor
28 May 2018
School
Department
Course
Professor
WEEK 4: INTRODUCING DIFFERENT MARKETS AND PERFECT COMPETITION
CHAPTER 11: INTRODUCTION TO MARKETS
Perfectly Competitive
Markets
Monopolistic
Competitive Markets
Oligopoly Markets
Monopoly Markets
Number of Firms
Many
Many
Few
One
Type of Product
Identical Products
Sometimes
Differentiated
Identical /
Differentiated
Unique
Barriers to Entry
Low
Low
High
Very High
Power to Set Prices
None – price taker
Some
Some
All – price maker
CHAPTER 12: PERFECT COMPETITION
CHARACTERISTICS OF PERFECT COMPETITION
• Many buyers and sellers
• Homogenous products à G+S offered are identical so consumers are indifferent as to who they purchase from
• Price taker à no individual has sufficient market power to influence market prices
• Free entry and exit à costless in long run = no barriers to entry
SUPPLY IN THE SHORT RUN
• At least one of a firm’s FOP is fixed in SR regardless of output
o In deciding output in SR, firm ignores fixed costs b/c they are sunk
• If a firm produces, supply curve = marginal cost curve
o If it chooses not to produce in SR (q = 0), the firm shuts down
o Shut down condition:
)* <?$
§
T < D?$Éü†
, firm will shut down
• A firm will supply when
+T ≥ D?$Éü†
o GRAPH: SR supply curve = MC curve above
D?$Éü†
• GRAPH: MC curve intersects AVC and ATC curve at minimum
MARKET SUPPLY IN THE SHORT RUN
• In SR there is no entry/exit of firms in the competitive market
o Prevented from exiting b/c fixed costs à if a firm wishes not to produce it shuts down BUT DOESN’T exit
• Short run market supply results from horizontal summation of individual firms’ supply curves
PROFITS AND LOSSES
• If making a loss
+T < D)$
• If making a profit,
T > D)$
o The difference between P and ATC at quantity supplied is average profit/loss a firm is making
• If breaking even,
T = D)$
