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chp 12 Managerial Decisions in Cochp 12 Managerial Decisions in Competitive Marketsmpetitive Markets

chp 12 Managerial Decisions in Cochp 12 Managerial Decisions in Competitive Marketsmpetitive Markets

Market can be divided into 4 basic groups:

Perfect competition Monopoly

Monopolistic competition Oligopoly

In this chapter the first 3 will be discussed.

Market can be divided into 4 basic groups:

Perfect competition Monopoly

Monopolistic competition Oligopoly

In this chapter the first 3 will be discussed.

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Characteristics of market Characteristics of market structurestructure

Market structure

Number of producers

Power over price

Types of products Examples

Perfect competition

oligopoly

monopolistic competition

monopoly

Many

Many

Few

One

Standardized

differentiated

Standardized or differentiated

Unique

None

Some

Some

considerable

Agriculture

Retail trade

Oil, steel

Public utility

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What is the difference between

Perfect competition Monopoly

Monopolistic competition

Market conditions are given and no need to consider your competitors.

Oligopoly React to your competitors’ actions.

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（（ 11 ）） The product is identicalThe product is identical

（（ 22 ）） Each firm cannot affect the market Each firm cannot affect the market

price price

（（ 33 ）） There exists unrestricted entry There exists unrestricted entry

（（ 44 ）） Full and complete knowledgeFull and complete knowledge

12.1Characteristics of Perfect 12.1Characteristics of Perfect CompetitionCompetition

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Q Q

PP

E

DS

d

O O

PePe

MarketDemand curve Facing A Perfect Demand curve Facing A Perfect

CompetitorCompetitor

12.2Demand Facing A Perfectly 12.2Demand Facing A Perfectly Competitive FirmCompetitive Firm

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Q （千万）

P

EE

D

O

PE

Individual firm

Market Demand Demand curve curve

QE

Market Price

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Q

P

d （ AR = MR = AR = MR = PP ）

O Q

TRTR

O

PMRAR

8

Q

P

d （ AR = MR = P ）

O

Pe

SMC

SAC

QeQ1 Q2

E

边际收益等于边际成本原则分析一边际收益等于边际成本原则分析一边际收益等于边际成本原则分析一边际收益等于边际成本原则分析一§12.3Profit Maximization In The §12.3Profit Maximization In The Short RunShort Run

§12.3Profit Maximization In The §12.3Profit Maximization In The Short RunShort Run

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Positive Economic ProfitPositive Economic ProfitPositive Economic ProfitPositive Economic Profit

Q

P

d1 （ AR1 = MR1 = P1 ）

O

P1

SMCSAC

Q1Q2

E1

AVCAVC

E2

P2 F1d2 （ AR2 = MR2 =

P2 ）

Break-even Break-even pointspoints

Break-even Break-even pointspoints

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QQ

PP

OO

SMCSMCSACSAC

QQ33

AVCAVCdd33 （（ ARAR33 = MR = MR33 = =

PP33 ））dd44 （（ ARAR44 = MR = MR44 = =

PP44 ））

EE33

EE44

PP33

PP44

QQ44

FF33 EE22

Shut down Shut down the firmthe firm

Shut down Shut down the firmthe firm

FF44

The Firm Operates at a LossThe Firm Operates at a LossThe Firm Operates at a LossThe Firm Operates at a Loss

11QQ

PP

OO

SMCSMCSACSAC

AVCAVC

dd55 （（ ARAR55 = MR = MR55 = =

PP55 ））

EE55PP55

QQ55

FF55

EE44

EE22

GG55

12QQ

PP

d1 （ AR1 = MR1 = P1 ）

O

P1

SMCSMCSAC

Q3 Q1Q2

E1

AVC

d2 （ AR2 = MR2 = P2 ）

d3 （ AR3 = MR3 = P3 ）d4 （ AR4 = MR4 = P4 ）d5 （ AR5 = MR5 =

P5 ）

E2

E3

E4

E5

P2

P3

P4

P5

Q4Q5

Short term Equilibrium under Perfect competition

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ILLUSTRATION 12.1

• Do R&D Expenditures Affect Drug Prices?

• p441

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12.4SHORT-RUN SUPPLY FOR THE 12.4SHORT-RUN SUPPLY FOR THE FIRM AND INDUSTRYFIRM AND INDUSTRY

QQ

PP

OO

PP11

SMCSMC

QQ33 QQ11QQ22

PP22

PP33

PP44

QQ44

AVC

QQSS = = ff （（ PP ））

EE22

EE33

EE44

EE11

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PP

OO

PP22

SMCSMC

QQi2i2

PP11

QQi1i1

AVCAVC

SS

QQQQ

PP

OO

PP22

QQ22

PP11

QQ11

SS

Individual firmIndividual firm INDUSTRYINDUSTRYINDUSTRYINDUSTRY

11

1 )(PP

PQQn

ii

1

11 )(

PPPQQ

n

ii

16Q

P

d1 （ AR1 = MR1 = P1 ）

O

LMC

LAC

Q3Q1 Q2

d2 （ AR2 = MR2 = P2 ）

d3 （ AR3 = MR3 = P3 ）

E3

E2

E1

P3

P2

P1

12.3Profit Maximization In The 12.3Profit Maximization In The Long RunLong Run

12.3Profit Maximization In The 12.3Profit Maximization In The Long RunLong Run

F1F3

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Long term Equilibrium under Perfect competition

SACLACSMCLMCMR

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ILLUSTRATION 12.1

• Do R&D Expenditures Affect Drug Prices?

• The rest of the story p445

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• 判断下列说法是否正确• 1 、完全竞争市场条件下，如果对商品的

生产增加税收，则税收的负担主要落在生产者头上，如果对商品的销售增加税收，则增税的负担主要落在消费者头上。（北大 1998 ）

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• 由于在长期均衡时，完全竞争的市场上利润必等于零，企业进入某行业最后都会处于零利润状态，因此企业就无必要进入。 （北大 2000 ）

• 如果一个厂商是追求利润最大化的，那么它就不应该在亏损的状态下维持它得到的利润。 （北大 1997 ）

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• 如果一厂商的 MPa=5 ， MPb=12 ，同时Pa=3 ， Pb=7.2 ，则这个场上达到了利润极大均衡。你认为这句话对吗？

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• 某企业有新旧两台机器，平时旧机器只是备用，试问在什么情况下这台旧机器才会被投入使用？从中你可以得出什么结论？

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• 1. Which of the following is a condition of perfect competition?

• A. products produced by rival firms are perfect substitutes B. individual firms can affect market supply C. industry sales are small D. restricted entry and exit E. firms do not have complete knowledge about production and prices

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• 2. For a firm in a perfectly competitive market, marginal revenue?

• A. is the addition to total revenue from producing one more unit of output. B. is equal to price at any level of output. C. decreases as the firm produces more output. D. both a and b E. both a and c

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3. The next two questions refer to the following figure:

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• If the firm is producing 100 units of output, increasing output by one unit would ______ the firm's profit by $______.

• A. decrease, $2 B. increase, $2 C. increase, $1 D. decrease, $1 E. increase, $3

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• 4. If the firm is producing 200 units of output, decreasing output by one unit would ______ the firm's profit by $______.

• A. increase, $2 B. decrease, $2 C. increase, $3 D. decrease, $5 E. increase, $5

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• 5. In order to minimize losses in the short run, a perfectly competitive firm should shut down if?

• A. total revenue is less than total cost. B. total revenue is less than total fixed cost. C. total revenue is less than the difference between total fixed cost and total variable cost. D. total revenue is less than total variable cost.

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• 6. When a perfect competitive industry is in long-run equilibrium,

• A. firms have incentives to enter or exit the industry. B. market price is equal to minimum long-run average cost. C. each firm earns a normal return. D. both b and c E. all of the above

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• 7. The next 4 questions refer to the following figure:

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• If market price is $50, how much output will the firm produce?

• A. 0 units B. 100 units C. 300 units D. 400 units

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• 8. If market price is $50, how much profit will the firm earn?

• A. $12,000 B. $15,000 C. $3,000 D. $6,000

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• 9. If market price is $20, how much profit will the firm earn?

• A. zero B. -$3,000 C. $3,000 D. $300

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• 10. At what level of output will the firm break even?

• A. 100 B. 200 C. 250 D. 350

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Q

P

O

P1

SMCLAC

Qi1

E

SAC

Qi2

D1

D2SS1 SS2

O

P1

P2

Q2Q1 Q3

A B

LS

Q

P

Typical firm industry

Constant-cost IndustryConstant-cost IndustryConstant-cost IndustryConstant-cost Industry

P2

LONG-RUN SUPPLY FOR THE INDUSTRYLONG-RUN SUPPLY FOR THE INDUSTRY

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Q

P

O

P1

SMC1

Qi1

E1

SAC1

Qi2

D1 D2

SS1SS2

O

P1

P2

Q2Q1

A

B

LS

Q

P

Typical firm industry

SMC2

E2

SAC2

P2

Increasing-cost industryIncreasing-cost industryIncreasing-cost industryIncreasing-cost industry

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Q

P

O

P1

SMC2

Qi2

E2

SAC2

Qi1

D1 D2SS1

SS2

O

P1

P2

Q2Q1

A

B

LS

Q

P

Typical firm industry

SMC1

E1

SAC1

P2

decreasing-cost industrydecreasing-cost industrydecreasing-cost industrydecreasing-cost industry