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PX
D2
D1
Q1 Q2
Quantity D1
of X per
unit of Q2
time Q1
I1 I2
Income per Unit of time
Quantity
of X per
unit of Q2
time Q1
D
I1 I2
Income per Unit of time
S1 S2
P2
Price P1
Q1 Q2 Q3
Quantity Supplied
QS(x) = f ( PX, PI, T, TX / Sub, PO, E, NS)
Surplus S
P1
P*
P2
Shortage D
Q*
Quantity
Graphical Presentation
S
P1
P2 D1
D2
Q2 Q1
A decrease in Demand
Graphical Representation
S1
S2
P1
P2
D
Q1 Q2
An increase in Demand
Applications of Equilibrium
Price / output
Rational Function of Price
S
Price
P1
P1 P2
P2
D
QD Q1 QS
QS Q1 QD Quantity
IC1
Good x
Good x
Equilibrium takes place where willingness and
ability would be equal.
X1 X2 X3 X
Q P
= -------- --------
P Q
|E| = 1
|E| < 1
Q
- TR
Q I
= -------- --------
I Q
P D
Q
In the long-run, each firm operates where
P = ATC (min).
Thus there is no economic profit for the firm.
LATC
P D=AR=MR
Price
D
Q
The Monopolist can have control over its price and can increase its
output supplied to the market by reducing the price.
-Monopolist optimizes his output / price where his MR = MC
Monopolist Power is influenced by elasticity of
demand
P MC 1
---------- = ----------
P |E|
Myths about Monopoly
Monopolist charges the highest possible price
Monopolist can not suffer loss
Monopolist faces an inelastic demand curve.
Monopolistic Competitor
Monopolisticcompetitor lacks one of the
major structural requirements for pure
competition, namely homogeneity of
products.
Differentiated
products are produced
which have close substitutability but are
perceived by the consumers as Different
Goods.
Duopoly
Two firms having mutual interdependence
Competitive adjustment is made in output
and price.
Cournot Model, Stackalberg Model
Bertrand Model, Edgeworth Model,
Hotelling Model, Chamberlin Mode.
Oligopoly
As against Duopoly, oligopoly represents a
market situation with a few large firms.
It is also possible to have a large firm dominating
the industry with competitive fringe consisting of
few small firms.
The important aspect of oligopoly is mutual
interdependence and competitive adjustments in
output and price.
Price leadership by dominant firm Model, Kinked
Demand Curve Model, Cartel etc are example of
oligopoly market Models.
Basic Characteristics of the Four Market Models