The model of perfect competition and the conditions for its occurrence. Perfect competition model and its characteristics

29.09.2019

Pure (perfect) competition is market structure, in which there are many sellers and buyers on the market offering and buying homogeneous (standardized) products.

Perfect (pure) competition (rige competition) -

competition between sellers of goods, which takes place in the so-called ideal market, where there is an unlimited number of sellers and buyers of a homogeneous product, freely communicating with each other.

In conditions perfect competition The market supply consists of the products of many small sellers. Due to the small volume of production, none of them can affect the total volume market supply and market price level. Only simultaneous and unidirectional action on the part of all sellers can influence market supply and cause a shift in its curve. For example, the low market price for potatoes in given year may cause all farmers to reduce their crops next year. Market demand also consists of the sum of the demands of all buyers, and none of them is large enough to influence its volume and the formed price level. Only simultaneous and unidirectional action on the part of all buyers can lead to a shift in the demand function. Thus, at the end of August the demand for school supplies increases noticeably.

The small size and multiplicity of market entities exclude the possibility of agreements on volumes and price levels. Thus, the market price is the result of the joint actions of all buyers and all sellers. Due to the fact that a perfectly competitive firm cannot influence the level of market prices

and uses them as given by the market, she is a price taker, and her individual demand curve is absolutely price elastic (Fig. 8.1).

Rice. 8.1. Demand curve for the products of a competitive company: a - supply and demand in a perfectly competitive market; b - demand for the products of an individual company

As shown in Fig. 8.1, a, the market demand curve (D) decreases due to the law of demand, but the demand curve of an individual firm (d) is a horizontal line, since a competitive firm, being a price taker, can sell any additional quantity of goods at the established market price (Fig. 8.1, b). At a price above P E, demand will be zero, since the firm will lose all its customers who can buy exactly the same products at a price P E from other firms.

It is not profitable for a company to set a price lower than P E, since it can sell all its products at the current market price. Under these conditions, the firm's average and marginal revenue are equal to the current market price. Therefore, the demand curve for the products of an individual company is simultaneously the curve of average and marginal income (Fig. 8.1, b).

Since the decisions of an individual firm do not affect the market price (P E = const), the total revenue curve (TR) of the firm will increase in direct proportion to the volume of production and sales of products (Fig. 8.2).

Rice. 8.2. Total revenue (income) of a competitive firm

The absence of any restrictions and barriers in a completely competitive market (no patents, licenses, significant initial investments, quotas, etc. are required) ensures absolute mobility of all resources, freedom of their movement geographically and from one type of activity to another, where their alternative the value is higher.

The perfect competition market model also assumes that information is distributed instantly and free of charge and all decisions are made under conditions of certainty, i.e. all firms know their income and cost functions, resource prices and all possible technologies, and all consumers have full information about the prices of all sellers.

The perfect substitutability of homogeneous products from different firms in a perfectly competitive market means that the cross price elasticity of demand for it is close to infinity. Since all products are absolute substitutes, buyers do not care which manufacturers they buy them from. Product homogeneity is the reason for the lack of non-price competition in this market, therefore, the difference in prices may be the only reason for the buyer’s preference for one company or another. This means that even a small increase in price by one firm above its market level leads to a complete switching of buyers.

consumer demand for competitors' products. Consequently, no firm can sell its product at a price even slightly above the equilibrium price, while a competitive firm does not need to sell its product at a price below the equilibrium price.

The market economy is a complex and dynamic system, with many connections between sellers, buyers and other participants business relations. Therefore, markets by definition cannot be homogeneous. They differ in a number of parameters: the number and size of firms operating in the market, the degree of their influence on the price, the type of goods offered, and much more. These characteristics determine types of market structures or otherwise market models. Today it is customary to distinguish four main types of market structures: pure or perfect competition, monopolistic competition, oligopoly and pure (absolute) monopoly. Let's look at them in more detail.

Concept and types of market structures

Market structure– a combination of characteristic industry characteristics of market organization. Each type of market structure has a number of characteristic features that affect how the price level is formed, how sellers interact in the market, etc. In addition, types of market structures have varying degrees of competition.

Key characteristics of types of market structures:

number of sellers in the industry;
firm size;
number of buyers in the industry;
type of product;
barriers to entry into the industry;
availability of market information (price level, demand);
the ability of an individual firm to influence the market price.

The most important characteristic of the type of market structure is level of competition, that is, the ability of an individual selling company to influence the overall market conditions. The more competitive the market, the lower this opportunity. Competition itself can be both price (price changes) and non-price (changes in the quality of goods, design, service, advertising).

You can select 4 Main Types of Market Structures or market models, which are presented below in descending order of level of competition:

perfect (pure) competition;
monopolistic competition;
oligopoly;
pure (absolute) monopoly.

Table with comparative analysis The main types of market structure are shown below.

Table of main types of market structures

Perfect (pure, free) competition

Perfectly competitive market (English "perfect competition") – characterized by the presence of many sellers offering a homogeneous product, with free pricing.

That is, there are many companies on the market offering homogeneous products, and each selling company, by itself, cannot influence the market price of these products.

In practice, and even on a global scale national economy, perfect competition is extremely rare. In the 19th century it was typical for developed countries, in our time, only agricultural markets, stock exchanges or international foreign exchange market(Forex). In such markets, fairly homogeneous goods are sold and bought (currency, stocks, bonds, grain), and there are a lot of sellers.

Features or conditions of perfect competition:

number of selling companies in the industry: large;
size of selling companies: small;
product: homogeneous, standard;
price control: absent;
barriers to entry into the industry: practically absent;
methods of competition: only non-price competition.

Monopolistic competition

Market of monopolistic competition (English "monopolistic competition") – characterized by a large number of sellers offering a variety of (differentiated) products.

In conditions of monopolistic competition, entry into the market is fairly free; there are barriers, but they are relatively easy to overcome. For example, in order to enter the market, a company may need to obtain a special license, patent, etc. The control of selling firms over firms is limited. Demand for goods is highly elastic.

An example of monopolistic competition is the cosmetics market. For example, if consumers prefer Avon cosmetics, they are willing to pay more for them than for similar cosmetics from other companies. But if the price difference is too large, consumers will still switch to cheaper analogues, for example, Oriflame.

Monopolistic competition includes the food and light industry markets, the market of medicines, clothing, footwear, and perfumes. Products in such markets are differentiated - the same product (for example, a multicooker) from different sellers (manufacturers) can have many differences. Differences can manifest themselves not only in quality (reliability, design, number of functions, etc.), but also in service: availability warranty repair, free delivery, technical support, installment payment.

Features or features of monopolistic competition:

number of sellers in the industry: large;
firm size: small or medium;
number of buyers: large;
product: differentiated;
price control: limited;
access to market information: free;
barriers to entry into the industry: low;
methods of competition: mainly non-price competition, and limited price competition.

Oligopoly

Oligopoly market (English "oligopoly") - characterized by the presence on the market of a small number of large sellers, whose goods can be either homogeneous or differentiated.

Entry into an oligopolistic market is difficult and entry barriers are very high. Control individual companies above prices limited. Examples of oligopoly include automobile market, markets cellular communication, household appliances, metals.

The peculiarity of oligopoly is that the decisions of companies on prices for goods and the volume of its supply are interdependent. The situation on the market strongly depends on how companies react when one of the market participants changes the price of their products. Possible two types of reaction: 1) follow reaction– other oligopolists agree with the new price and set prices for their goods at the same level (follow the initiator of the price change); 2) reaction of ignoring– other oligopolists ignore price changes by the initiating firm and maintain the same price level for their products. Thus, an oligopoly market is characterized by a broken demand curve.

Features or oligopoly conditions:

number of sellers in the industry: small;
firm size: large;
number of buyers: large;
product: homogeneous or differentiated;
price control: significant;
access to market information: difficult;
barriers to entry into the industry: high;
methods of competition: non-price competition, very limited price competition.

Pure (absolute) monopoly

Pure monopoly market (English "monopoly") – characterized by the presence on the market of one single seller of a unique (without close substitutes) product.

Absolute or pure monopoly is the exact opposite of perfect competition. A monopoly is a market with one seller. There is no competition. The monopolist has full market power: it sets and controls prices, decides what volume of goods to offer to the market. In a monopoly, the industry is essentially represented by just one firm. Barriers to entry into the market (both artificial and natural) are almost insurmountable.

The legislation of many countries (including Russia) combats monopolistic activities and unfair competition (collusion between firms in setting prices).

A pure monopoly, especially on a national scale, is a very, very rare phenomenon. Examples include small settlements (villages, towns, small towns), where there is only one store, one owner public transport, one railway, one airport. Or a natural monopoly.

Special varieties or types of monopoly:

natural monopoly– a product in an industry can be produced by one firm at lower costs than if many firms were involved in its production (example: enterprises utilities);
monopsony– there is only one buyer in the market (monopoly on the demand side);
bilateral monopoly– one seller, one buyer;
duopoly– there are two independent sellers in the industry (this market model was first proposed by A.O. Cournot).

Features or monopoly conditions:

number of sellers in the industry: one (or two, if we are talking about a duopoly);
firm size: variable (usually large);
number of buyers: different (there can be either many or a single buyer in the case of a bilateral monopoly);
product: unique (has no substitutes);
price control: complete;
access to market information: blocked;
Barriers to entry into the industry: almost insurmountable;
methods of competition: absent as unnecessary (the only thing is that the company can work on quality to maintain its image).

Galyautdinov R.R.

Real markets, as a rule, are in the zone of imperfect competition and can be classified as either oligopoly or monopolistic competition. Despite this circumstance, the study of market structures in economic theory begins with an analysis of the ideal perfect competition model. Firstly, the model allows us to study real markets, the operating conditions of which are close to competitive ones. Secondly, using the example of a competitive market, the main question facing any company is resolved: what volume of products should be produced to maximize its profits, i.e. what are the conditions of economic equilibrium of the company. IN - third, the model of perfect competition allows us to assess the degree of monopolization and the efficiency of functioning of real markets .

Let's consider a small farming, deciding how much area to allocate for sowing crops next year. Obviously, the farmer proceeds from the prices that prevailed on the market this year. And his decisions to increase or decrease his production will not have any impact on the market price of the product. A perfect competitor is in the market price taker and his individual demand curve is perfectly price elastic (Figure 7.2). The market demand curve decreases (Figure 7.1). Demand curve , that an individual firm deals with is a horizontal line, since a competitive firm can sell any additional quantity of the crop without reducing the price.

Figure 7.1. Product demand curve Figure 7.2. Demand curve for

competitive industry products of a competitive firm

Since the decisions of an individual firm do not affect the market price (P e = const), total income curve (TR) of the firm will increase in direct proportion to the volume of production. Total revenue (total revenue, TR ) - this is the total amount of income received by the company from the sale of all its products: TR = P x Q. Average revenue (average revenue, AR = TR/Q). Average income competitive firm is determined by the market price for any volume of output: AR = P . Marginal revenue (MR) - additional income from the sale of one additional unit of output: MR = Δ(TR)/ ΔQ or MR = TR"(Q). Marginal revenue of competitive a firm is determined by the market price for any volume of output: МR = Р.

Question 4. Short-term and long-term equilibrium of a competitive market

In conditions where the current price is set by the market, the only way to increase profits is to reduce production costs and regulate output. Based on the currently existing market and technological conditions, the company determines the optimal output volume, i.e. one that provides the company with the maximum possible profit.

Regardless of which market - competitive or non-competitive - a company operates, its profit will be greatest if the volume of output is the largest difference between total revenues TR and total costs TC , as is the case with output volume Q* in Figure 7.3.

The total profit function is calculated as the difference between the total income (revenue) function and the total cost function: TP = TR – TC. The derivative of the total profit function is called marginal profit: P"(Q)= TR"(Q) - TC"(Q) or P"(Q) = MR – MS, where MR - marginal income; MS - marginal costs. At the optimum point, the derivative of the total profit function is equal to zero: P"(Q)=MR – MC=0. Therefore, the optimum condition for the firm is: MC = MR.

This equality applies to any market structure, but in conditions of perfect competition it is slightly modified. Since the market price is identical to the average and marginal revenue of a competitive firm P = AR = MR , then the equality of marginal costs and marginal revenues is transformed into the equality of marginal costs and prices: MC = R. Remember the economic meaning of the Lerner coefficient.

To estimate the short-run supply function a competitive company should proceed from the optimal condition (P = MC), and from the condition of the feasibility of continuing production (P > min AVC). A competitive firm's supply curve will coincide with its marginal cost curve MC above the minimum level of average variable costs AVC . At lower than min AVC , level of market prices, the supply curve will coincide with the ordinate axis.

IN long term all factors of production are variable and the condition for the feasibility of continuing production becomes: P > min AC. Since we are considering a competitive industry, we assume that there are no restrictions on entry or exit from it.

If the level of costs prevailing in the industry allows individual producers to receive a positive short-term economic profit, then firms operating in the market strive to expand their production to the optimum point. At the same time, the investment attractiveness of the industry is increasing, and all larger number external firms are beginning to develop this market. The emergence of new firms in the industry and the expansion of the activities of existing firms inevitably increases market supply, reduces the level of market prices and, as a consequence, leads to a decrease in economic profit to zero. Consider what happens if economic profit is negative for the short run and the long run separately. Conclusion: in conditions of perfect competition, economic profit tends to zero.

The absence of economic profit does not deny the existence of normal profit as the price for entrepreneurial ability. Consider that there is a normal profit and a normal rate of interest on capital, and why attempts to deny the exploitation of labor under conditions of perfect competition are untenable.

Questions about lecture 7. Analysis of market structures. Perfect competition model

Two meanings of the term competition

Translate the term "poleo"

Translate the term "oligos"

Translate the term "psoneo"

Definition of market structure, its types

Criteria for classifying market structure

Characteristics of perfect competition

Characteristics of Monopolistic Competition

Characteristics of Oligopoly

Characteristics of a monopoly

Production concentration indicators

Degrees of concentration of production in Western practice

Degrees of concentration of production in Russian practice

What indicator expresses the degree of market power of a company?

What is a perfect competitor in terms of price?

What is the average revenue and marginal revenue of a competitive firm?

Derive the optimal condition of the company from the point of view of costs and sales

What does the optimum look like for a firm that is a perfect competitor?

What does the individual supply curve of a competitive firm look like in the short run?

Curve individual offer competitive firm in the long run

What is the economic profit of a firm under perfect competition?

Does zero economic profit mean no exploitation of labor?

1. The concept of competition

Competition

long-term periods

The concept of competition.

Market competition is the struggle for limited consumption demand, waged between firms in the market segments available to them.

Competition forces them to take into account the interests of consumption, and therefore the interests of society as a whole.

Based on the degree of development of competition, there are 4 main types of markets:

1. Perfect competition market;

2. Market of imperfect competition, subdivided:

a) monopolistic competition;

b) oligopoly;

c) a monopoly.

The perfect competition model is based on on four main conditions:

1. Products must meet the condition of product homogeneity. This condition actually means that there is a difference in prices the only reason, by which a buyer may choose one seller over another.

2. Neither sellers nor buyers influence the market situation in the industry due to the smallness and number of all market entities. The volume of consumer purchases (or sales by the seller) is so small that a decision to decrease or increase this volume creates neither a surplus nor a shortage.

Market actors are unable to influence prices.

3. Barriers to entering the market are called any competitive advantages firms already operating in the industry versus those seeking to enter the industry.

The most typical barriers to entry are:

Large starting capital required to open a business;

Uniqueness of the product or technology used;

Legal restrictions.

Market exit barriers are called:

- losses inevitable when trying to withdraw a business from a given industry and move it to another. Most often, the exit barrier is high sunk costs, i.e. the need to sell the company's assets that have become unnecessary for next to nothing.

- There are also legal restrictions. For example, providing rent for certain area for a store, the municipality can stipulate the preservation of its profile for a certain time (for example, not to close a socially important pharmacy in a residential area).

The condition of the insurance company is the absence of barriers to entry and exit from the market.

When such barriers exist, sellers begin to behave as a single corporation, even if there are many of them and they are all small firms.

In Russia, such restrictions are widely observed in fruit and vegetable markets, which are almost impossible for a simple peasant to penetrate.

4. Information about prices, technology, probable profits, etc. is freely available to everyone. There are no trade secrets. Those. The company makes decisions in conditions of complete certainty regarding the market situation.

In reality, markets that fully satisfy the conditions of the insurance company do not exist.

For all its abstractness, the concept of SC plays an important role:

Firstly, the model of a perfectly competitive market allows us to judge the principles of functioning of those markets where there are many small firms offering similar products, and where conditions have developed that are close to the conditions of the middle class.

Secondly, it allows - albeit at the cost of great simplifications of the actual market picture - to understand the logic of the company's actions.

Perfect competition criterion

Taking into account the listed conditions of SC-ii, the demand curve for the company's products will look like a horizontal line (absolute elasticity of demand).

The presence of perfectly elastic demand for a firm's products is usually called criterion of perfect competition.

Principles of firm behavior in a perfectly competitive market

Profit maximization as the main motive of the company's behavior.

Profit– the difference between total revenue and total costs for the sales period.

In the conditions of the UK major decisions in managing a company are primarily related to establishing the volume of production that allows you to achieve maximum profit.

What are the criteria for choosing the optimal volume??

Before answering this question, each company must fundamentally decide whether it is worth engaging in production at all. Those. find a criterion for the feasibility of production.

This criterion is different for short-term and long-term periods.

Long term

If we talk about the long term, then it is obvious that such a criterion will be the presence of non-negative economic profit. At a minimum, the firm must earn an accounting profit. In case of losses, the owners resort to liquidation, i.e. closing and sale of property.

Working with losses, the company has to make loans that it is not able to repay. Sooner or later, such a policy leads to bankruptcy, or insolvency, i.e. to the firm's inability to pay its obligations.

After recognition (in judicial procedure When a company goes bankrupt, the previous owners are removed from its management, and the property is used to cover debts to creditors.

Bankruptcy Institute is in market economy one of the most important mechanisms for ensuring the social responsibility of entrepreneurs.

Having freedom of enterprise, i.e. the right to arbitrarily make any (legal) business decisions, entrepreneurs must pay for possible errors loss of property belonging to them.

Discontinuation of production

In the case when the market price of a product is below the minimum average variable costs, the company stops producing products.

Really, given price Not only does it not cover all costs, it is not able to fully cover variable costs. Those. each unit issued to an inevitable loss in the amount of fixed costs It also adds the uncovered part of the variable costs associated with the production of this particular product.

ATS

The amount of losses at production volume Q1 is equal to the area of the entire shaded rectangle (ATC1-P)xQ1.

AFC1=(ATC1-AVC1)xQ1 – on the graph they are equal to the area of the rectangle between the average cost curves.

The entire portion of the shaded rectangle below the AVC curve and before the price is a net loss due to failure to discontinue production.

By shutting down the plant, you can save money on them. This is exactly what many companies that find themselves in difficult situations do.

In practice, another motive often plays an important role in temporarily stopping production: the pause allows you to clear warehouses by selling off previously accumulated unsold surplus of finished products.

Please note that a short-term cessation of production does not mean the liquidation of the enterprise (company) itself. The company is simply forced to temporarily stop production. It will stand until the market price increases to a level at which production makes commercial sense. But the company can also be convinced of the long-term nature of the price decrease. Then it will finally cease to exist.

Release optimization

The choice of a fundamental behavior option (maximizing profits, minimizing losses, temporarily stopping production) represents the first step of a company towards optimizing its position in the market.

The next step is to pinpoint the level of production that will maximize profits or minimize losses.

As we have already said, this can be done by directly comparing gross income and gross costs. This is exactly what individual entrepreneurs of small firms often do, who do not have the opportunity to rely on powerful accounting departments, but from practical experience they know very well both the market price and all types of their costs.

But a more accurate way to determine the optimal production size is to compare marginal revenue and marginal cost.

Increasing output increases profits only if the income from the sale of an additional unit of production exceeds the production costs of this unit, i.e. if MR is greater than MC.

On the contrary, when the costs associated with the production of one more unit of product are higher than the income MR generated through its sale, it is less than MC, then, by producing the corresponding portion of the product, the firm only reduces its profits or increases losses.

Therefore, the maximum profit is achieved at the intersection point of MR and MC.

This pattern in economics is usually called rule of equality of marginal revenue and marginal cost. According to it, profit maximization (loss minimization) is achieved at a production volume corresponding to the point of equality of marginal costs and marginal revenue.

This rule is true not only for perfect competition, but also for other types of markets.

Under conditions of perfect competition, profit maximization (loss minimization) is achieved at a production volume corresponding to the point of equality of marginal costs and prices.

a) Profit maximization

b) Minimizing losses

ATS

c) cessation of production

On graph a) Let us note that the production volume Q0 in the case of profit maximization is greater than the production volume Qmin, which would correspond to the minimum level of average total costs, i.e. technological optimum of production.

The economic meaning of this is that at point Qmin it is achieved maximum profit per unit of production. The graph shows that it is here that the distance between the ATC and P curves is greatest. However, the firm does not maximize the specific profit per unit of output, but the gross profit from all production. Therefore, it makes no sense for her to refuse to produce units of output lying between Qmin and Q0.

Even if their profits per unit of output are somewhat lower, they will also contribute to the increase in gross profit. The inequality MR›MC applies here, which means the firm benefits from the release of each unit of additional output.

Graph b) shows the situation of minimizing losses. The company and in this case focuses on the MR=MC rule, choosing the production volume Q0. In this case, it turns out to be below the technologically optimal level Qmin.

Those. at a reduced price level (when they are below the break-even point), the technological optimum becomes economically unattainable. During the protracted crisis in our country, many domestic enterprises experienced this pattern: the low level of demand forces them to underutilize their production capacities.

When production is stopped, the MC=MR rule does not apply .

Thus, this rule has the limitation that it is not applicable at price levels below the minimum value of average variable costs.

Studying the behavior of a company when different levels prices, we are actually describing its supply curve.

The MC curve of a competitive firm in the short run will simultaneously be its supply curve for that period.

Consequently, the product supply curve in the short run is limited only by that segment of the marginal cost curve MC, which is located above the minimum point of the average variable cost curve. In other words, the supply curve coincides with the marginal cost curve only at MC › AVCmin.

The supply curves of individual firms make up the supply curve of a competitive industry.

Perfect competition model.

1. The concept of competition

2. Principles of behavior of a company in a perfect market

Competition

3. Equilibrium of a competitive industry in the short-term and

long-term periods

The concept of competition.

The behavior of a company and its choice of production volumes depend on the type of market in which it operates.

The most powerful factor dictating general conditions the functioning of a particular market is the degree of development of competitive relations in it.

From the course economic theory We know that the market can be classified from different positions. However, from the point of view of individual firms or households, the product market (finished goods) becomes of utmost importance in microeconomic research. It is in these markets that each economic entity acts as a buyer or seller, interacting with other firms and consumers. Each industry (product) market is an entity that has distinctive organizational features that can be combined with each other. These stable basic combinations of characteristics predetermine the market model or, in other words, the market structure.

Market structure is a set of organizational characteristics of the market that predetermine the type of competition between firms and the method of establishing market equilibrium. Essentially, this is the economic environment in which buyers and sellers operate in a given market.

The typology of market structures is based on the features we previously analyzed. In accordance with this, two types of market structures are distinguished, which in turn are criteria for identifying two types of competition - perfect and imperfect. Let's look briefly at each type, as a more detailed analysis of their functioning will be presented later in this and subsequent chapters.

Perfect competition is a market organization in which many small firms operate that are unable to influence prices and market equilibrium.

Imperfect competition is a market organization in which firms can influence prices and market equilibrium. Within the framework of imperfect competition, there are several types of market structures (see Table 3.1).

Table 3.1. Types of competitive structures.

Types of competitive structures	Number and size of firms	Product Description	Conditions for entering and exiting the market	Price control by the company
Perfect competition	Many small companies	Homogeneous	No problem	Prices are determined by the market
Monopolistic competition	Many small companies	Heterogeneous	No problem	The firm's influence is limited
Oligopoly	The number of firms is small. There are large companies	Heterogeneous or homogeneous	Possible barriers to entry	There is an influence of the price leader
Monopoly	One company	Unique	Insurmountable barriers to entry	Almost complete control

Monopolistic competition is a type of market structure in which firms can influence the price of a product within a particular market segment. The degree of their influence is determined by the level of differentiation and uniqueness of the product they produce. This market structure is quite common in modern conditions and typical for restaurant business, clothing markets, footwear, book printing.

Oligopoly is a type of market structure in which there is interdependence and strategic interaction of several fairly large firms with a significant market share. Markets with an oligopolistic structure arise, as a rule, in high-tech capital-intensive industries characterized by long-term economies of scale - in shipbuilding, automotive industry, household appliances, etc.

If many producers in the market are opposed by several large buyers of the product, “covering” a significant part of the industry demand, oligopsony arises. This type of market structure is typical for markets for components used for the production of technically complex products.

Pure (absolute) monopoly is a type of market structure in which, on the one hand, there is one seller, and on the other, many small buyers of his product. A monopolist, producing a unique product, has great power in the market and is able to dictate its terms to it. Examples of monopoly markets include airports, railroads, and oil and gas pipelines.

Perfect competition and its main features. Product demand and marginal revenueperfect competitor.

Perfect competition – This is a market structure in which there are many, usually not very large, firms on the market, they produce homogeneous products, entry and exit from the market is quite simple, information about the state of affairs with the sale of goods is available to all market participants. Market of pure (perfect) competition – the oldest of all types of market structures, at the same time it is the simplest and most understandable for pricing: it is built solely on the basis of market demand and supply. Therefore, the price setting mechanism used here is most suitable for the process of forming production costs, calculating the income and profit of the company. A market of perfect competition is characterized by the fact that the product entering the market is strictly standardized and homogeneous in its consumer properties, so the buyer does not care which company to buy it from. The only criterion for purchasing here is the price, and its value is determined by the market. The process of formation of market demand and market price under perfect competition occurs taking into account the market mechanism, i.e. based on ratio market demand and market supply. As for an individual firm, here the process develops differently: an individual firm does not participate in the formation of prices, it obeys the price already established in the market, which changes very slowly. The demand curve for the firm's products under these conditions is a horizontal line. Total income TR = Q*P Average income(income from sales of a unit of product) AR = TR/Q= P Marginal Revenue (the income a firm receives from the sale of each additional unit of output) M.R.= dTR / dQ = P, d – increase in total income and increase in production volume. No matter how much additional product a firm produces, it cannot influence the market price. Therefore, each additional unit of the product will be sold at the same price as the previous one and bring the same average income to the company.

Equilibrium of a perfect competitor firm in the short run: maximizing profits, minimizing losses.

In an alternative approach, the firm compares how much each additional unit produced adds to its gross revenue and total costs. In other words, the firm compares marginal revenue (MR) and marginal cost (MC) of producing each subsequent unit of output. Any unit of output for which the marginal revenue exceeds the marginal cost associated with it should be produced because the production and sale of each such unit increases the firm's income by more than its increase. total costs. On the contrary, if the marginal cost of producing a unit of a product exceeds the marginal revenue from sales, the firm should refuse to produce it, since this will reduce overall profit or cause losses. The production and sale of such a unit will increase costs more than revenue, that is, its production will not pay for itself. Rule of equality of marginal revenue and marginal cost: rule MR=MS : A firm maximizes profits or minimizes losses when its production meets the point where marginal revenue equals marginal cost.

The firm's supply curve in the short run. Industry supply in the short term.

Whenever determining the equilibrium volume of production, one should find the point at which MR = MS, and lower the projection from it onto the axis Q . In this case, the reference point is invariably the firm's marginal cost curve. The firm's marginal cost determines the firm's supply price (whether it makes sense to produce the product or not). If a firm faces a market price R 1, then, in accordance with the profit maximization mindset, it will produce Q 1 units of production. If the market price falls to the level R 2,then the firm will reduce production to Q 2 units of production and will work in self-sufficiency conditions, compensating for its savings with the income received. costs. If the price continues to decline to the level R 3, then the firm will reduce production to Q 3, trying to minimize their losses. Finally, if the market price falls to the level R 4, the company will have to choose: stop production or carry it out at the level Q 4. That is: for a firm operating in conditions of perfect competition, marginal cost curve above the point of its intersection with the average variable cost curve ( AVC) coincides with supply curve firms in the short run. It's the curve MS shows how many products a firm will produce at each given price level. If the supply of a variable resource in a competitive industry is perfectly elastic, then industry supply curve of this industry can be obtained by horizontally summing the corresponding portions of the marginal cost curves of all firms. If the increase in consumption of a variable resource in the industry is accompanied by an increase in its price, then industry supply curve short-term period will acquire a slope steeper than that formed at constant prices for the resource. Conversely, a decrease in the price of a variable resource with an increase in its consumption in the short term is reflected in industry supply curve competitive industry is more flat compared to a situation where resource prices do not change. However, it can be stated quite definitely that, no matter how the price of a variable resource changes when its consumption changes, The industry supply curve of a perfectly competitive industry has a positive slope in the short run. This means that in order to increase production in a competitive industry, buyers must be willing to pay a higher price for more goods.

Equilibrium of a perfect competitor firm in the long run.

In order for a firm in a perfectly competitive market to be able to long-term equilibrium, compliance is required conditions: 1. The firm should have no incentive to increase or decrease output for a given fixed cost, which means that short-run marginal cost must equal short-run marginal revenue. 2. Each company must be satisfied with the size of its existing enterprise, i.e. volumes of fixed costs of all types used. 3. There should be no motives that encourage old enterprises to leave the industry, and new ones to enter it. If these requirements are met, then: 1) the price will be equal to short-run marginal cost; 2) the price will be equal to short-run marginal cost; 3) the price will equalize long-term average costs. And only in this case will long-term equilibrium be achieved. Long run equilibrium equation: Price = Marginal cost = Short run average total cost = Long run average cost. If the conditions described above are met, the firm will be in a state of long-term equilibrium at the point E at a price R and production volume Q . Violation of any of these conditions will take the firm out of a state of long-term equilibrium. In the long run, market forces under the influence of supply and demand lead firms to a state where they all produce at the level of long-run average costs, which means that the firm covers all its costs and, in addition, receives a normal profit, which is included in costs . No one can receive more income than his normal profit. Long-term equilibrium takes a very long time to achieve and is extremely short-lived. At the same time, as a rule, in the long run, firms experience multiple cases of passing equilibrium points.

The long-term equilibrium option is based on the condition that changes in production volume in the industry occur while maintaining constant prices for resources. This means that production costs in the industry do not change. This industry is usually called industry of fixed costs. It is natural that supply curve here it will be built taking into account fixed costs, i.e. they will not affect price and production volume. The fixed cost industry has a perfectly elastic long-run supply curve. But in practice, resource prices are very volatile, and competitive firms are forced to adapt to these conditions. Supply will also change depending on income or changing consumer tastes. If resource prices rise as production volumes increase ( rising cost industry), then the industry supply curve takes on a positive slope, and if resource prices decrease ( declining cost industry), then the long-run industry supply curve has a negative slope.

Long-termsupply in a competitive industry. Perfect competition and economic efficiency.

Taking into account the features of the company's behavior in the long term that we have considered, we can determine the level of its supply at each possible price. Optimizing its capacity according to the principle of equality of market price and long-term marginal costs, the firm chooses output volumes lying on the LMC curve. The break-even condition assumes that the market price cannot be less than the minimum long-term average cost. Hence the conclusion: the long-run supply curve of a perfectly competitive firm is the portion of the upward-sloping segment of its long-run marginal cost curve that lies above the long-run average cost curve. Because the firm has more room to maneuver in the long run, its long-run supply curve is flatter than its short-run supply curve.