- Slides: 13
CHAPTER 7 Dynamics of markets: Imperfect markets MONOPOLIES
CAPS requirements Examination of the dynamics of imperfect markets with the aid of cost and revenue curves. • The dynamics of imperfect markets with the aid of cost and revenue curves • Monopolies • Oligopolies • Monopolistic competition
Introduction Imperfect market: a market in which at least one firm has market power. Imperfectly competitive markets include… • Monopoly • Oligopoly • Monopolistic competition
Revenue curves • Imperfectly competitive firm faces downward sloping demand curve for its product. • Can set market price by fixing quantity it supplies therefor a price setter/maker.
MR curve cuts X axis halfway btwn. origin and Imperfectly competitive must reduce price if they wish MR curve negatively sloped & below AR/demand curve. TR maximised where MR = zero. to sell more causing TR to increase smaller amounts where AR/demand curve, cutsbyhorizontal axis.
Monopolies Monopoly: one firm in the industry responsible for total supply of output. • Able to change market price by changing quantity it supplies. • Supplies quantity that enables it to maximise profits (MR = MC).
Characteristics Single seller (price maker) Unique product Complete barriers to entry Incomplete information Can make economic profit in the long run.
Mustcurve choose Demand of acombination monopolist of P & Q
Downward-sloping D curve means increased Therefore MR will be less than price. MR curve of a monopolist sales = decreased price.
as for any producer Cost of. Same production of aother monopolist
NORMAL ECONOMIC PROFITS: AC = AR (demand) AR><AR AC curve ECONOMIC LOSSES: AC LR: of only normal or economic profits. Profits a monopolist Total revenue =<> Total cost
Differences between Monopoly and Perfect Competition