economic

Week 4

Chapter 11:

Factors affect the degree of competition

· the number of firms (数量越多，竞争越大)

· the freedom of entry and exit of firms into industry

· the shape of demand curve

market structure:

2 种不完美竞争： monopolistic competition is more competitive; oligopoly

Perfect competition

4个assumption:

1. firms are price taker. A horizontal ( perfectly elastic) demand

2. complete freedom of entry into the industry for the new firms. 现有公司不能阻止. Applies in long run

3. all products are identical product. “homogeneous” means they are all prefect substitutes for each other

4. producers and consumers are prefect knowledge of the market

short run: no time for new firms to enter market, super-normal profit can persist.

long run: market price = long-run average cost

all super-normal profits competed away! 所有的超常利润都在竞争中消失了!

if AC curve is above AR curve at all points, MC=MR represents loss-minimizing point (where loss is defined as anything less than normal point)

Who benefits from perfect competition?

If it becomes less efficient than other firms, it will make less than normal profit.

If it becomes more efficient, it will earn super-normal profit, but they will not last for long.

Productive efficiency: a situation where firms are producing the maximum output for a given amount of inputs, or producing a given output at the least cost.

Producing at the minimum cost and making normal profits means that prices are kept at a minimum, which is beneficial to consumers.

Under perfect competition, producing the level of output where price equal marginal cost.

if P>MC, consumer were putting a higher value on the production of extra units the MC

WHEN MC=P, allocative efficiency.

Monopoly:

The demand curve for the Monopoly is usually less elastic.

There must be barriers to the entry of new firms, high enough to block.

Because entry by other firms is often difficult, the Monopoly can usually have super-normal profits in the short-run and long-run. 由于其他公司进入往往很困难，垄断通常会在短期和长期获得超常利润。

The monopolist will produce a lower output at a higher in short run. In the long run, the price will tend to be higher, and hence output lower, under monopoly.比竞争更激烈时生产更少、收费更高

A Monopoly may have little incentive to produce at lower costs to gain efficiency at lower prices. 垄断企业可能没有动力以较低的成本生产以获得较低的价格效率。

- However, consumers can benefit if the Monopoly faces Potential competition by new entrants. 不过，如果垄断企业面临新进入者的潜在竞争，则消费者可从中获益。

- The greater potential entry is, the more contestable a market is. 进入市场的潜力越大，市场竞争就越激烈。

- Many contracts for Monopoly services (e.g. railroad, or catering of a company) have this characteristic. 许多垄断服务合同(例如铁路或公司的餐饮)都有这个特点。

- Costs of entry and exit influence contestability. 出入境成本影响可竞争性。

Perfectly contestable market: a market where there is free and costless entry and exit. The greater of threat of this competition, the lower entry and exit cost to and from the industry. If the cost is 0, it is perfectly contestable.

Natural Monopoly自然垄断

A situation in which economies of scale are so large that one firm can supply the entire market at a lower average total cost than can two or more firms. 指规模经济非常大，一个公司能以低于两家或两家以上公司平均总成本的价格供应整个市场的情况。

Price Discrimination

The practice of charging different customer groups different prices for the same product, based on the strength or elasticity of consumer demand

根据消费者需求的强弱或弹性，对同一产品向不同客户群体收取不同价格的做法

Week4

Monopolistic competition

Assumption:

1. quite a large number of firms (所以每个公司市场占比很小,所以公司做决定不必考虑对手）independence means that when the decisions of a firm in a market will not have any significant effect on the demand curves of its rivals.

2. Freedom of entry of new firm

3. Differentiated product means that it can raise its price without losing all its customer.

Short term

The less elastic demand curve is, the greater will be firm’s short-run profit.

Long run equilibrium will be reached when only normal profit remain: when there is no further incentive for new firms。

AR=LRAC (at any other output, LRAC is greater than AR and less than normal profit would be made.)

Under prefect competition: where new firms enter the market, it is the supply curve that shifts, which changes the market price and leave normal profits.

A horizontal demand curve

Less will be sold and at a higher price

Firms will not be producing at the least-cost point

Under monopolistic competition, the entry of new firms is reflected by shifting an established firm’s demand curve inwards and eliminates the super-normal profits.

顾客能获利，选择更多种类的产品

限制：如果不能意识到super-normal profit公司不能进入市场。互相区别，不仅仅是产品和服务上的， 还有size和cost, entry may not be completely unrestricted. 存在的公司赚super-normal profit，新公司加入会降低每个人的profit低于normal profit。

Excess capacity：in the long-run, firms will produce at an output below that which minimize average cost per unit.

Oligopoly

a few firms between them share a large proportion of the industry.

特点：barriers to the entry of new firms and interdependent (每个公司之间互相影响）

The interdependence 意味着公司会有两个方向：to compete and to collude ( 勾结）

竞争可能cut price，earn less revenue