Characteristics:
1. Few, mutually interdependent firms
2. High barriers to entry
3. Imperfect Information
Implications:
1. Actions of 1 firm will affect the market
2. Long Run Profit can be > 0
3. Strategic cheating possible
1. Large number of sellers
2. Differentiated Products
3. Difference in Cost
4. Antitrust Policy
Characteristics:
1. Many small buyers and sellers
2. No barriers for entry
3. Differentiated Products
Implications:
1. No individual can affect Pe or Qe
2. Long Run Profit = 0
3. Advertising/Price Makers
1. Many Sellers = Small Demand
2. Close Substitutes = High Elastic Demand
1. Decrease Search and Information Costs
2. Facilitates the introduction of new products
1. May be persuasive rather than information, designed to alter preferences
2. Establish brand name loyalty, increasing monopoly power
3. Competing ads may cancel each other out, resulting in a waste of resources that does not alter demand
Characteristics:
1. Single Seller
2. No close substitutes
3. High Barriers to Entry
Implications:
1. Market D = Firm D
2. Price Maker
3. Long Run Profit can be > 0
1. Economies of Scale
2. Government Created Barriers
3. Controls of an Essential Resources
1. Some degree of market power
2. Two or more groups of buyers with different price elasticities of demand
3. Prevention of resale
Market Power
1. Contrived Scarcity
2. Deadweight Loss
1. Quantity of Output Rises
2. Total Revenue Rises
3. Total Cost Rises
1. The ΔTR from 1 unit increase in L
2. When a worker is hired, Q rises by MPl when those units are sold, firms earn MR each
MRPl = MR * MPl
1. The ΔTC from 1 unit to increase in L
2. If we assume that labor is the firm only variable cost, then
TVC = Labor * Wage
MFC = ΔTVC
Characteristics:
1. Many small employers compete for many workers with identical skills
2. Firms are price takers - they face a perfectly elastic supply of labor
What is happening on the graph in perfect competition market through profit maximization?
What are the necessary conditions for long run competitive equilibrium?
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