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Managing in Competitive,
Monopolistic, and
Monopolistically
Competitive Markets
Copyright 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Chapter Outline
Chapter Overview
Perfect competition
Demand at the market and firm levels
Short-run output decisions
Long-run decisions
Monopoly
Monopoly power
Sources of monopoly power
Maximizing profits
Implications of entry barriers
Monopolistic competition
Conditions for monopolistic competition
Profit maximization
Long-run equilibrium
Implications of product differentiation
Introduction
Chapter Overview
Key Conditions
Perfect Competition
Perfect Competition
Price
Price
Market
Firm
Market
output
Firms
output
8-5
Perfect Competition
8-6
Perfect Competition
$
Revenue
B
Maximum
profits
Slope of
A
Slope of
Firms output
8-7
Perfect Competition
8-8
Perfect Competition
Profit
Firms output
8-9
Perfect Competition
8-10
Perfect Competition
Perfect Competition
Loss
Firms output
8-12
Perfect Competition
Fixed Cost
Loss if produce
Firms output
8-13
Perfect Competition
8-14
Perfect Competition
In Action
$
Short-run supply
curve for individual firm
Firms output
8-15
Perfect Competition
8-16
Perfect Competition
Individual firms
supply curve
Market supply
curve
S
$12
$10
500
Market output
8-17
Perfect Competition
Price
Exit
Entry
D
0
Market
output
Firms
output
8-18
Perfect Competition
Long-Run Competitive
Equilibrium In Action
$
Long-run competitive
equilibrium
Firms output
8-19
Perfect Competition
8-20
Monopoly
Monopoly
Price
Output
8-22
Monopoly
Economies of scale
Economies of scope
Cost complementarity
Patents and other legal barriers
8-23
Monopoly
Revenue
Maximum
revenues
Elastic
Unitary
Unitary
Total Revenue
Curve
Inelastic
Elastic
Inelastic
D
0
Q
MR
Firms
output
8-24
Monopoly
8-25
Monopoly
8-26
Monopoly
Output Rule
Monopoly
A profit-maximizing monopolist
should produce the output, , such
that marginal revenue equals
marginal cost:
8-28
Monopoly
Cost function
Revenue function
Slope
of
Maximum
profit
Slope of
Output
8-29
Monopoly
MC
ATC
Profits
Demand
MR
Quantity
8-30
Pricing Rule
Monopoly
8-31
Monopoly In Action
Monopoly
Monopoly
Multiplant Decisions
Monopoly
different locations.
Monopoly
Monopoly
Monopoly
MC
ATC
Demand
MR
Quantity
8-37
Monopoly
8-38
Monopoly
MC
Deadweight loss
Demand
MR
Quantity
8-39
Monopolistic Competition
Monopolistic Competition
Profit-Maximizing Monopolistically
Competitive Firm In Action
Price
MC
ATC
Profits
Demand
MR
Quantity
8-41
Monopolistic Competition
Profit-Maximization Rule
To
maximize profits, a monopolistically
Monopolistic Competition
Long-Run Equilibrium
If firms in monopolistically
competitive markets earn short-run
profits, additional firms will enter in the
long run to capture some of those
profits.
losses, some firms will exit the industry
in the long run.
8-43
Monopolistic Competition
Entry in Monopolistically
Competitive Market In Action
Price
MC
ATC
Demand1
MR1
MR0
Demand0
Quantity of Brand X
8-44
Monopolistic Competition
Long-Run Monopolistically
Competitive Equilibrium In Action
Price
MC
Long-run monopolistically
competitive equilibrium
ATC
Demand1
MR1
Quantity of Brand X
8-45
Monopolistic Competition
8-46
Monopolistic Competition
8-47
8-48
Conclusion
Firms
operating in a perfectly competitive