RAFFLES INSTITUTION YEAR 5 ECONOMICS 2018 rene Lecture Outing FIRMS" DECISIONS AND STRATEGIES 44 nreduetion ITY Charani determining market stutues 2. Perfect Competition (PC) 24 cheraauratea ibe PC Maret Suc 22 Pring eation unde PC 25 how ie Caracnisis Afect Output Dodson Under Pafect Compebion {Po)"Pretemaxmisng Equlvram QrgnsetApreach) a1 Shor Run Eaatorum Shutdown Gonaton 232 Ung Run Equi and Shutdown Conon 3 Monopoly 231 Character and How Ty ee The Decsions ofa Wonopalit 52 How te Characins Ae! he Prin na Cut Desire of Prof ‘mating Monopotst S321” Shor Run and Long Run Prof Under a Prftmacinisng Monapsist 322 Nonprofit axining Objeties of Monoplit 323° Neal Monopoy ‘4. Monopolisic Competition (Po) 1 y Chareetten FMP 442 How the Characters Afoct Pring and Oulput Desens of «Prot ‘ating Menopotscaly Competitive Fm 5. Otgopely 51 Cheraerstes of Ogopoly £2 How the Characste Afect Pring and Non Pricing Cacsons in an 522 Cometive Oigopaly 523 Symes ofOwopey Behaviour 6 Otar strategies Bi PrceSranses 513 _Preantary Prag, Price Wr, Uni Pring 62 Non-prce Suatoges S21 Adverisng and Promoton eat tbs 832 Francseng 6-4 Atamaive Madson Pricing tins ere1. Assessing Performance of Bfferont Maret Stuctues 12 Compareonof aroma heroas Dieret Market Suctres 323 Produce eMsonty 723 Eauly 124 Dynami flency (novaten) 125 Consumer Choie 13 Thoory of Contesante artes 74 Poe Disemnaton arte Publ terest ‘Append ‘Append: Mather! Relationship Between Total Average and Margal Revenue Conca ‘ependt 2:Peak Lead Pring: (her tamooral Pes Diciinston ‘Soman, J, Eeorenies, 6b Eon, Honors: rene Hal Prayet& Rubra, Micoeconomicn 2" Ean Maoman NY 1 Fan Sopra nau Manel Stctie and Eonar Paromarce, 880, Heaghten iin 1 Tooker Eooomics Today. SWLoeming 1 Groktes, Levit a Syverson, Mleseeaneme, 1 Elon, Worn Planers 1 Paull Sweeny. Demand Under Condtine of Oigapd Te uma of Peis Esanomy, Velie a7 wate & (Aug, T280) S08 7 Lecture object ‘Aho endothe leche sre, caps shoul be a: ‘utah the tay fesuras of antn othe market structs "roan hw fs compte ne respechve markt secures sed cn thee + Undrstir ne otovanceorbaris to ent hexose erences between + Spy ese modelsinanaising and comparing martets an evaluat thi {hanes a explanations of fel won compevebahavou? + Use th concent at rote toute rel wana eompettvedelons mds by feats protect thei fie Emons borerwander Pot 3 A. FIRMS' DECISIONS AND STRATEGIES 4. INTRODUCTION ims et goods and saves under teen mate condtons, which economists ct Trae stucures Hers caput priang ane non-rcng decsions snd sieges are Sosea not nly on the ojctnes hey soo atiove bt a als based on he maka Suctures bey an. Uncersianing marks suche ls Ky to runing = surcosstl [usnese Busines owners nee 9 know tetype of market seu he ae engaged fin ercer to krow, for example, how much feeder hey Rave to Ft ss, Faw “The maret struct the fem ae in also have an impact onthe evel of of fie {an make nthe long nae ctaees seal o cnaumers an wha fen) an be achieved in hese mae The concept tha we expre in his ope il ap ‘to Setar unerstand the choles fanny fs, consumets an py mars. 4.4 The FourcharacteristiesDstomining Market Stuctre Market srucres la assiicaton estan forthe kay charactors ofa market Toy Nate ef prauct owleege a reductmeret Enontof bariers to oney 12 Types of Market Structure ‘There se 4 types of must sbuctre - perfect compettion, monopolistic compotion, ctgepaly and monopoly. They vary accurding fo te degree ct ‘ampatton i lemma he nanber an neo re reltive othe mare [A one end of he spocrum is pect competion where thers ae many tims her an each tm an negli part of to whe MaUeEy onepO, whereby tees ny ane frm nthe mame nd thre ‘Ze no cher compaing fin between woul be fms in menopate compebion {hv lgepol, Monopole competion gepay avd moropaes ae srpeie market Marka rcs ao diferin tems of te nate of product ne hnowlege of pod {Snd extant of arr oe andeat- 2, PERFECT COMPETITION Pret competion 2 marist stucture whereby hee isa large numberof small fim roatve to market siz and ts product Nemogeneous, barre {0 entry nd xiao absent and Information a prtect. Tho model of parfect competion i rogarded asthe ‘dea ype and is olen used as 2 ‘andar agaet which we joie the shrcomingsofrea-word Indusies. As oh k Isbulton assumptions thet ar or tie. 24 Charactorstcs of «Perfectly Compettive (PC) Maret Structure Large nomber of buyers and seer Cine mae‘im in market hae no sigifant share of otal market output eto ne lock ‘uy brrar Each fen Panes acts independently fm decting sown output love. rater Wen coordinating dione coleavay For exams. ere are Yreusande of independent opp farmers the Unies Sinton, eacy cing Independent decding ta outer 1k Homogeneous produet “he prodct of the fm intel 19 that of is mls (ry oher warts, they ae perfect subethites). Tor exami, Famer rows eggs ara sms eamer ‘ones eage Buyer wl therfore not snow pr‘erenes fr he proto any ene famer orm. Ths cnarsoree rane aut vary among rman ave ah ‘ally ferences. iven al products ae sandardze, boris re vary ne Given te inslgnticant matt share and homogenety of he sro, each fr is Unable to determine th price of sown product and nas el atthe pe ta ie ‘etemned by maria domand ané supp. eher words, each PC tm se pce ‘ier No barr to eney and exit tec! rgovemmentmooded barirs such a leenees and pales ae abueré Ferinstarce statu cotta aie Rena ae ow Ths lock of en bars account fr tele sunbe ffs with nsieieant tare share. lee accounts or why PO fms ean only make normal preis {he tong un te, Perfect owe very saler ions ho pias and preducton cos offal, mart cot, and he ‘alae soducontchnaogy Buyers sea have competeintrmason abut each ‘Sd evry solers pice, the qaly end avalainy of te produce. Thus, buyers a pot purcaes fom PC fr at sels fs good st pie Ngher an he ‘rvang markt eaulorum pce “This carci contrbutes othe fm beng a pric taker, 22 How th Charactrstis Aect Ping Deeslons Under Pertect Competition ec} Ths perfecty competitive firm i price taker because of charactors () (Dana (00. The PC fm ha no conte over te pce fhe pros Nels but Ras fo ow ‘he marat pce wh x catareed byte maracton between mat Sorand sd Tre ay ocr afc nol ama an hv nese ‘As shou In Figure tthe marie equlbum pie OP is determined by be blracton between raat demard and martt supply. The PC tm hae to sal te edule Provaing market pree O because 1+ tthe PC fr wet os good tove he markt pice OP, quay demanded {erat PC fo’ produ wil fl to 20 becuse consumers wl rly purchase Se poet tam’ any car Am orc he Posie Pees mows = “+ The ital PC fm has no icenve 16 reduea the pce Blow the market hulls pice OP Because can el at wart the proving mare nc.Tease been Bat 3 Figure Po Markt Demand and Sun Demand fr Perfectly Cmpattive Finn's Product ooo PrceRevenuetost Maret Suey Finis Dd= AR = UR Demand e aanity 0) Tanty “Toe matt demand curve isthe horizontal sunmaton ofthe ind consumers emand cave arated bys downward sloping curve Secaure alin mast Dae leno an ineeaee in sunny demand forte go death substan Ena income sflaan (focal subsnuson and neowe feck fom demand sd si, Tec nates) ‘The demand for the PC rn’ output onthe ote hard e poroctly pie laste eeause tha PC fm ea pric takor Hens, te PC fs dernd curve suse stod 1p a horzonal sit pa whieh means that every Unt of ouput wil be sol the tet poe. OF For the PC fr, ts Pie (P) = Average revenue (AR) = Marginal revenue (ER). To ‘derstand why, ta taeda have an understanding of the Geren yes of revenue once + Rovenve concapte Total venue (TR) refers w theta recep ofa tm gonerated fom ing goose ond srvoes na maa. 1+ TR=Price (Py imes Quantiy sold (Q)=P times @ erage Revenue (AR) afer th revenue puri f up sod ‘Assume a unlrm pic is charged epee fest sal + AR=TRO=IPxa)Q=P Marginal Revenue (MR) refers to the inate in avenue reeling fom Sling an adsonal unt ftp + we are aa "ote price, Since the demand cave elect the asim pce consumers are wing and able pay foreach unt a te good, he ‘emand curve forthe fim’s output sls ts average revenue (AR) cuve ‘+ Tho PC fim’s marginal rovonue (MR) romains constant and is equal to AR rogerdoss of the output level because fe sale of ea ad every aso un Eon oeomneefase as aye se aan leven For exile, an ete Shtis sod ata constant poe of an ea 5 ibe ened 1+ The mathematica! mialonsip Between price, average revenue, magn! verve Sr tea evans explored nose eli pond 25 How the Charactaristes Afect Output Decision Under Perfect Competition eo) Profit tsxmising Equilibrium (Warginaiet Approach) Profit refers othe siference betwee fata evans (TR) antl oppornty ost (7). Pro paye»sanieant lem bussenees Bocas pots te inal sun or ‘evar for underaking skin he usneas. Profs ae ao mporan becmure Danks Sinpew and cher indore are more key fo rouge Snanea 10 frm at Geronsvates Be ily to rate pros The aby fo make pros alo eure he Sal te nan nut ne ang un In atin retained protean emperor Sues of ance fora tusmess tanec pas ae rots thal ate eumod bat are aot Sembee tho owners va ahigend or eer payments iatoa they ae rerwennd land can bs uted france RED and expansion oth rm “Te waditona hoy fhe fe sssumes ht fsa o maximize otal profits (oat in mame the ference between ttl reverie CTE) and Wil eppoanty oa (chByachieg is am, thei sald tobe m euler wort. te fr has no andere te chang ts pie ang output declan ough he BC fim eannct determing ts oun prs ut hao seep he markt poe fren, te PC tm ean Setemira cup lve The PC tne eqilnum t prdusig the level of put at asics tal prof. In order tras a Potato ‘atonal PC fem hes to make output decstons a the margin by weighing emargnl cost (QC) agahst ts magna revere (UR). The PC femme ‘ony wen the folowing Wo condone are met 1 = Me and 8. MC must rn. Figure 2: Perfectly Competive Firm 04= A= MR = Price arty bo mR=ne + Recainal Mc = ATC! AQ Recainat mR = ATAU 8a. EOS ease eae SraDoceore Pet Erte)resid Par + Inder o masice ett rofl, afr shuld produce the ett level where {he sion to lal revenue fom the sle oe est ont of ouput eae 1 he ‘Sion fo al oa Ie pedusng In ator words, margin revenues equal ‘marginal cost Aa shaun in gue to pret maxing cpt wel at 00s ‘The fem sheul ange is eat lovel whenever marginal revenue teal rratgna cost bess TC or AR > AC) PricafRevenueCost yo "aul Reverve= OPAB Total Coe 180 DeeAR=uR | Proms =PCEA ‘Supers pts a8 to ‘own ao abnormal pots pure economic pro i i i tL _———— Gtenay +The PC im in gre 3a is making short run supornornl profits. Supemormat [Hott the exces of tal prof above real prot Hence tare ie meee er awit ertarthe martin ong un Bona GeosrorCor AR=AC) "Tia Reve ‘Teta coet= " De=AR=UR i i i po © autraty ‘+The FC fm n sgue 30 a mating noemal profs. Normal pats be minimum profit reqire to keep acoso rocco te eure use Ine ong an The firm's total revenue adequately companastoa De one's forthe tine and ther ‘evouces they expend io Reep eBusiness gong. Figure: Equilibrium with subnormal prot (TR TVC) Inthe shor run opps al market Stucures). ‘+The PO frm can en make nomal profs inthe long run because of steer of ety 1+ Shortrun end Leng-an shutdown endorse sven blow: ‘Should the fm making subnomal profits (TR TC or AR> AC) ea @ ‘rtiy or “ota Revenue= OPA ac “Total Coet= oct Profits = PBA ° = ‘ueuty ‘Figur 7: Normal Proft(TR=TC or AR = AC) sveruaicort “ata Cont = rots =Figure 7e:Subnormal Prof Equilbum {assume TRcTC but TROTVC (or ARCATC but AR> AVC) PrcefgvenieiCot “Toil Revenue = oPEQ ATC | rasa cost = 0640 ‘Though he manoplit is he only ler inthe marta, there sno gusanie titi rotate alos nt shorn Lice partcty compete tm, when 2 loss ls ncued he monet wl aim ring ts loses. The equlbrum ofthe fm where MR = MC e now th fous: ii level of ouput wl continue preduton ao log a al venues seo Cover at eat al oa varible cons of prosucen nthe short un ‘ihe monopotst wil conenue prosucten In Be stor un When IS Ft revue Is ‘sir hn te lal ova corse shoul Pius. {oss produaionconinuce » CPBA In tis case, the monepalt neue a enaler loss continues production, This i [ecauoe by protucing O0, staal revere is enough aver ate varabi coste "GD0) and some fe fue cans farea EPO) (ale fal the vera tance Uenmeen aFCand Ave etna AEC) ne 000 Pant Te When O's rodsced = EPSD_Figuo Te: Shortun shut down of monopoly essume TRTVC oF ARCAVC) PrcaRavenvetcost {oc for cording roduc: Los fom shuting down = Doman ‘Quetty Jn fou 7 th as rom hating down es than the ss rom contuingprosucton ‘The monopoly wi coose to sha-down I be anotrun a ext ey te longa te tuations unchanged ‘ona Run Profits: Its posable he monopatst to retain ts supemormal profits inthe long run by srecing hoge bares tery. Inthe long un, amonopots tke any poftraxisng firm, wil remain tunes only Hi can at east make normal protis er beak even ‘Tua, eng un eal to petemasaniing morepaly se Sut evel where ERME Mand TRis at oes equa Te. gure tusbatas 2 mongosly makrgsupemoma profs he lang un Figure 76: Supermormal Profit {TR> TC or AR> AC) PcaRaveruaiCost322 Natural Monopoly tn some mares, tral economies of sale eso rg rate to he mare size ‘Tat competion been wo ormore ime snp doesnt rake mush see! these [hses he rured ssaersctre ion eoety to replete, hanes maa manonly Seer A natural monopoly =a market which be mst demand age rough 2 ‘ype only one ge to Oprang ate nar minimum eft sal of preaurion ines Figure @ mustatas te revenue and cost cures of 2 natural monopoly. The LRAC Curve ofthe natural monepoy falls contnally over the ene markot mend, ‘eau na ver lrge MES rave maritdemane Fiues PrceReverualCos ARmonopaty = market demand unity ‘The slecicy-spoy market san exami of snarl monnply. This caus to Gperte nthe setiotysuppy market afm has fo sr ovefead cots at ae stoner tok These svethead cose neue the cons of lng power pas snd fge systems of daboulon poles and wes The overhead costa are ala ‘label Nigh compared ioe variable costs of supping soter unt of elt. Hence. the fm ha con sel he rol ehcraly ce sree ts ovemead cost more wey ve © lege aulput evel and can In un expo arable tcviealscenomls cf scala more {ly Tic wil nae te natura ronopay to achive ower og run eos per tatinan afm itn he same overhead oats bit ewer cepa With owe et oat. the hourzort son liberty reuse te pros of te prado to ara of plan fvants New matt errares lon fo pete on 4 smal scale and Rence ne! Svan ae wale fo compete eectvely wih be eumbent fm whch ls ead) peating on leper ao00, Tne natural Bare tue Sazouages poten new sss from anti. The result ie Wat one bi can have 8 ltge Sot wavantage Ih proving aoe ltt = gon regan‘eetonal Summary tony and ex. 2 These ate aiferent types of Baris © ety and ext They can be {alegozed is ala bariets and rata sara 3. Themenorl i poe sete. The pot-masiniing monopoly can ute the Imargnatspproschostis outa ere. The potmaxnaing out ve Ute merepelyeosure where MEME (his apples wo pce-sting tes startet sbuctes). te Stasents are expected to be able fo explin andor ilusats exch ofthe above 4, MONOPOLISTIC COMPETITION Menopocis competion is seen primary as 2 mate stucure whersby a rlatvaly large number of small rme sal aim but dlferontatodproguct, ana barons {0 entry and ut ae low and information fe imperact. The sors si enn 8 ‘ofan degre of markt poner because he products ae aorntatod nike, parte competion, mere is n2_maiel_dkmnd_cune for monopostc compan. Tse pearly because many pies preval ue prec fereniaton nd nalck of porfct knewadge amangat consumers ad seh Thete noche ‘Sale equ pe intro markt ‘Some examples of fms operating in monopalite competion incase hawker sal in ‘Singapore clusters of cle shope ad fst fod outs in Busy town con 12 ‘abessers na foal ran, Goat Seale nurseries and care heres he ds) mht ‘Sto ino he mare tudurehnown ee monopoieae comoctson 41 Charactorstes of a Monopolatis Compottive (MPC) Maret Structure Large numberof ema buyers and sales relative to market size “Tce large number of sma fms lava to te mara sae st any gin in Aime each tat each frm Roe rolavely smal share of the ttal markat This ‘Sues fom the lw barre arty. For anc, Singapore, each Newer tal ‘persian ona ed sale sash a8 3 era snl spac, ened amount of ekg ‘Saeing wens, each sal owner hres on one oro eer. ‘wah each fen havg a claety eral ehare ofthe mare, each frm's market ower eld, meanings ably to set price above la marginal cote limite In aston, each fim acts indopendenty ofthe other. No fem ams to ake io account he reacon ofa val rs bocauee ret ony stat posal ‘down ao mary rt retalaton by rasa les ay fo ocmr ene str tjwars as pre, Ss pina sus Fovence wal be sree iy er mary oe fala Since the ene to which each rl fm autre neghble, ech nf ‘be to dotamine fs prceauoutpacy white canadrabon ofthe posse Fosstons oval, gute ure the muti nerdepenaencsin on epee |Ecouins Cesena ‘Canis‘nino Pat 9 “Ine MPC fom, however, prefers to. engoge in nonsprng comation 16 iterntiate tor pods rom the le because ough prose ier, thoy re ale fo rai customer lyaly which prvises he frm wih a eran degree ofrartet powerto set pres 4. Diferentited products Produ ae sghty élferentated In the MPC maka seuctre, nother words, (tere reimany cose sutstuossvaleble.Proaic fearon cen ake Some: ‘Real physical diferences: Though product develomant and innovation (onde that sere infor purpose ate cred sucha way tha they tle {em (mina ways a9 sfewences inthe rae uses inthe radon ofthe {ood andi womanship, = For expla, nthe ca of hawkar sale In Shgapore, tere are many ‘aves of fond In ach hawker conte such ae Chinese cle, Maly {isa Indansuine and vestem cusina, Thre aio varaon nn 3c fod type. Chicken ce fe Feuer aiferenbated trough tate ara fave because cooking sen str Setveen sila or onth has 3 ty siterertrespe + imaginary alforences: her han uay, rods can alco be diferentes Drdenan seckagna, tanting ed Sethe ef promotion, Tis exe eevee frowgh nonce competine iecmiqiet soca msteirg techies, Ssvesing and pacapn, hase. sa to nom, prsuage and conan: ‘insumes puchese he peducte Ths may inereaze demanc fore ts rodua so wales to make domend aavel ees pew sla. ging re (eater eeway fe proes witout fear ofa les of matt share + Diforences in conditions of ale: Te ¢ achaved tough eierencee in ‘ue to the absence of longum supemonmal profs in menopeste competion Bacau of ck of ony barra, the exert and sae of ron-prie composi Te realy it ‘As are of procul dernier, exch MPC fim hs some degre of cont ror fe ct pice, uitta fy pated competion ‘The dorard cave for @ ‘ronepolaealy compete fm ls De‘tor down! stoping” But compared to {I otgopay or monopay tba demand forte firms product ie ralstvely price tlast tether are lvge numberof lose subattes This severly tne the Tmarst power of each menapalcaly compettive fm. In ort man ‘marat power, the rm have tensile pros are ly ferent from tner aie Bow barrios toantry and ext ‘The MPC maretsructure i characteraed by low bates to erty ans ext wich ‘reude elvey tow sarap cost, relatsy easy To copy technology” and ‘elately reefers of prosucton unk nme Jointed by lrg fms {Sw barre make teal for o era or fave th musty, hus oneuting & large numberof enal rms. Forinstance, tis rlnay ony to ap for eanees ‘perta 8 hawker sal ornare fo thes indus Ike te leconmuneaton tusty. "Tho cose of sting up 2 hawkor stale alo rlsvaly ow because ‘ramoed cats ko fe const Set Up cocina Hibs Ts relavey fw etal ‘Shatrcan ao be else om th very lw barista ent. em in monspalste conpetitn can only cour ratte Stemi otbw STE Inyoursosanrommal profs in the long run because potential entrants can easy rer the ‘Mara and erase he supemorms! profs exeong me mae, The maby wrth ‘upemornal poten the long nin rete the ty oF MBC sto engage In ingescate_atiertsing or Pvest huge sums of money Im Tesearch ahd eveopment hence pedusts aie only slghly dfeenints. Noneiears, the frovence of mary vals kee product diferentaton necesar) Tus, fms ‘morepoisie compelton do. engage m avertang” ard promotion, bit on faabvaly sal scale. Aaverng can be nthe frm ayers or Of ask tie ‘Soe onsonton and ie Sassi soatoneo nen=psper. Iv. imporoctknowedge Seles and buyers have impafect infomaton regarding production mathe end foes, i he cues of how sale, res ‘al ne conics mieten ‘jarng al greene Lace by 8 hawker and consumers sont have compet ‘nirmaton feparing ingfesnts used by te hawer or all matsole press (teres al haere 442 How the Characteristics Affoct Pricing and Output Deeslons of a Profi ‘maxinising Monopolstealy Competitive Fim 42:1 Shor Run Equi rum ofa Profitmasimising MPC Frm pending on on a tr ony rn nena con my to covrfevarela cot the wl cain poducton Frtne marke. ir cannot cover te varbie cot, fhe fr wil shit gown ah ap Producton tempore nthe tort, Fpures § musiates the revenue and cost cones of 3 typical NPC frm making Eipemormal ost ‘Supernonmal Prof TR TC or AR> AC) Price Reverustost ‘Ate poftmasiniing qulbeum ou evel & “ofa Revenue = 0A ‘Total Gost= 0000 Profts=Posa o=ar e anty 422 Lang Run Equlbrium ofa Proftmaximising MPC Frm ‘ue 0 ow bar entry, nthe long fn, mnoptecly compete frm makes ‘ni rormal pots, Ihe incumbent fee make supemormal profs new fer Eee loweineanemene Poe ror enue. On he er hand when bef make sutnorma pots fms that ‘inno ove her tal aia est wl shutdown en eave the aust. Assunta he proftimatimiing frm monopoise campsfon i isa earing Shor run soprnomal profi The ia proftrmacmsing equsarcn oe fm i ‘utpt Oc and pce OP, where UR, MC. Supemormal profs area PASC Ih Figure 10. “Ths eae fey slows nw frat tr he edu. They ae prods {hat re pont subsea to owe sad by cust fs. Comune row Rave © ‘derrange of pode 6 choose er ‘Assuming teal matt domané for he product rains vnchangd, the ey of new fers wi suse he erand for esc ms prot fl lhe same Ue, deta for tha fis product also bocoros rolabvely more prcslatic se mor subses are “Tha damsnd cure shits fom AR; to AR; unt tis tangentia ioe AC cue a ouput ‘Gre takes oy natal re, up Gay a rowan ver et ‘masinnngsuput va where My egusts MC. The equlorum proe hs ao fallen Figue 40: Adjustment from SR supernormal profits to LR normal pratt PrcefRgyeruatoet ‘uss om Shr Rn Subnormal ros to Lena Run Noms Profi. tne fms in monspoisic compotion are making SR loses, hose whose TRETVC tilbe forcea fo leave the indy as tere ae no bart calt Thor wl be fower Fimstet This means fewer competi. Theft, te demand rte xing es pros ien and Becomes fuvy tes price-leste. Ths tated bythe AR ‘ine shfing tothe sgh and becorangrelively sleeper rts tngoritl tthe AC Sine where maker noma profs. The resent ncoasa pce Ras lod Yo 8 ‘etn inosees ut the nig equlbnum of ror profs is estore.“The really, honever, Is hata sable equim is rover reached because new roadts con ana goal of he ine. Eusingpoaucs win amare ve DY 99 rough a poduc te cyte tal acl te woune ad grow cfaaie ‘Long-sun Eoulrism ofthe Proft-maximising MPC Firm ln te long ran, the prot maiishng MPC fr ean only make normal profits dus to lew oaror to erty and ext Figure 11: Nonal Profit (TR= TC oF AR= AC) Total Cost ‘ectonal Summary 1. The four charactors ef MPC are lige number f smal fs relative fo market, fleshy aflretted produ, ret knowledge and lw barre ty 2. TheMPC frm is aprice seer because products ae sgt direitos 3. Theprttmmaning MP tn Zan make superna nomalor abnormal pets slong 86 TRETVE i the = Caney make ronal prot inte ong run duet ow bain to erry an Note: Siadons are expectod tobe abo fo exis anto sate each ofthe above Sstenantn 5 OLIGOPOLY ‘An slopsty is a market dominated by 2 few large fms where market Concentration Ie high, heres here fms ate mutusly dependent end mus con the reacton of ral ots pce, nonprca and ouput declons. the charaeres ‘han sigopiy nus high barrore to envy and ext and mperect know, ‘gopotes can produce homogeneous or dfereniated product 64 Charsctereties of an Olgopely |. Afew dominant fms relative to markat ie “Tse fow ts each coms Epes Came tage proportion ef‘Sever Pan rately high matt power hence hey have the sity to set pce ané are pcs ‘Shows Duswsly he Greet wud for "to elles dominsing the market whe ‘Sigopiy eter Yew eel cominsting the mare ‘The degree whieh olgopy power has develope in any industry inate by ‘reasutng the market concanention rato. te een! o whieh fers seme {hs mart erinausty interme of marke shar, rean be measures 384 St Foe exampl, a fm concerto ao i the sum ofthe matet share of he 3 lego arsin the ndusy. nthe ble Slow is shown tat he lal bowery Indueey san oigeptybecaue te 3 largest rma have scores Mah he (6.4% oft ial bowery mart ‘gure 12: Maret Share of Top Beer Fs in the Global Brewery Industry Seren nm nani sonra veevoit donne tecee att 20 Sprmcancinaassntlr Cine exampes nose: “+The global car manulaturing industry e dominated by Vokwagen, Toyota, (Genera oor ang BMW + The US. mosis indus is dominated vy & major muse reorng bol (Unveres Muse Group, Sony Muse Group, Waar Music Group ind EME Grup) + Tlecommuniation sniceproversin Singapore (Sing Starhub and Mt), Peto! rtars in Sngepore EcLon Mbt, She SPC, Caton) {The sominane otal of producer nude OPEC (Organon of he Petotsun ‘Boring Couns of whiz he founding mamsore ede en fe, Kua ‘Sous Amb and Venezia Russia US-and Chine ‘fe exgopay mart might have dozens or even hunsreés onda es bat ‘ot of ther ae unmperart nthe due, # smal umbe” of em—peraps ‘iy 21020 ems dominate he nds. ‘us one presance of few dominant competion the market high degre of Interdependence or rival concelournere sists amonget hme 2h 09090) enc, evry acton taken by ary snl dian iy wi aft te asf a te ‘hor fime n he ae sanicarty. vas tons cannot bored a ey a ely fo resutn sgnfcant feds For inetance, muta! inetdopendance ests thn tha US. fat feod maha iyau are in eharge of compar hanno} [5 vial part of your Job to keep an eye on competiar, The eharshoders of ‘Wendy wou not be trgessed# te EO had noes tht MeDonal has st ‘troduced a naw Hind ef burr o Dat Burger King was oferng promotonal Beans Beemer