chp 12 Managerial Decisions in Competitive Markets Market can be divided into 4 basic groups: Perfect competition Monopoly Monopolistic competition Oligopoly In this chapter the first 3 will be discussed.

Characteristics of market structure Number of producers Power over price Types of products Examples Perfect competition oligopoly monopolistic competition monopoly Many Few One Standardized differentiated Standardized or differentiated Unique None Some considerable Agriculture Retail trade Oil, steel Public utility

What is the difference between Perfect competition Monopoly Monopolistic competition Market conditions are given and no need to consider your competitors. Oligopoly React to your competitors’ actions.

12.1Characteristics of Perfect Competition （1）The product is identical （2）Each firm cannot affect the market price （3）There exists unrestricted entry （4）Full and complete knowledge

12.2Demand Facing A Perfectly Competitive Firm S E d Pe Pe O O Q Q Market Demand curve Facing A Perfect Competitor

D P Market Demand curve Market Price E PE O QE Q（千万） Individual firm

Q P d（AR = MR = P） O Q TR O

§12.3Profit Maximization In The Short Run 边际收益等于边际成本原则分析一 P SMC SAC E Pe d（AR = MR = P） O Q1 Qe Q2 Q

Positive Economic Profit SMC SAC E1 P1 d1（AR1 = MR1 = P1） P2 F1 d2（AR2 = MR2 = P2） E2 AVC Break-even points Q O Q2 Q1

The Firm Operates at a Loss SMC SAC F4 F3 E2 AVC E3 P3 d3（AR3 = MR3 = P3） E4 P4 d4（AR4 = MR4 = P4） Shut down the firm Q O Q4 Q3

P SMC SAC F5 E2 AVC G5 E5 E4 P5 d5（AR5 = MR5 = P5） Q5 O Q

Short term Equilibrium under Perfect competition SMC SAC E1 P1 d1（AR1 = MR1 = P1） E2 P2 d2（AR2 = MR2 = P2） E3 AVC P3 d3（AR3 = MR3 = P3） E4 P4 d4（AR4 = MR4 = P4） E5 P5 d5（AR5 = MR5 = P5） Q5 Q4 Q3 Q2 Q1 O Q

ILLUSTRATION 12.1 Do R&D Expenditures Affect Drug Prices? p441

12.4SHORT-RUN SUPPLY FOR THE FIRM AND INDUSTRY QS = f（P） E1 P1 E2 AVC P2 E3 P3 P4 E4 SMC Q O Q4 Q3 Q2 Q1

Individual firm INDUSTRY P O P2 SMC Qi2 P1 Qi1 AVC S Q P O P2 Q2 P1 Q1

12.3Profit Maximization In The Long Run LMC LAC E3 P3 d3（AR3 = MR3 = P3） F3 F1 E2 P2 d2（AR2 = MR2 = P2） E1 P1 d1（AR1 = MR1 = P1） O Q1 Q2 Q3 Q

Long term Equilibrium under Perfect competition

ILLUSTRATION 12.1 Do R&D Expenditures Affect Drug Prices? The rest of the story p445

判断下列说法是否正确 1、完全竞争市场条件下，如果对商品的生产增加税收，则税收的负担主要落在生产者头上，如果对商品的销售增加税收，则增税的负担主要落在消费者头上。（北大1998）

由于在长期均衡时，完全竞争的市场上利润必等于零，企业进入某行业最后都会处于零利润状态，因此企业就无必要进入。 （北大2000） 如果一个厂商是追求利润最大化的，那么它就不应该在亏损的状态下维持它得到的利润。 （北大1997）

如果一厂商的MPa=5，MPb=12，同时Pa=3，Pb=7.2，则这个场上达到了利润极大均衡。你认为这句话对吗？

某企业有新旧两台机器，平时旧机器只是备用，试问在什么情况下这台旧机器才会被投入使用？从中你可以得出什么结论？

1. Which of the following is a condition of perfect competition? A. products produced by rival firms are perfect substitutes B. individual firms can affect market supply C. industry sales are small D. restricted entry and exit E. firms do not have complete knowledge about production and prices

2. For a firm in a perfectly competitive market, marginal revenue? A. is the addition to total revenue from producing one more unit of output. B. is equal to price at any level of output. C. decreases as the firm produces more output. D. both a and b E. both a and c

3. The next two questions refer to the following figure:

If the firm is producing 100 units of output, increasing output by one unit would ______ the firm's profit by $______. A. decrease, $2 B. increase, $2 C. increase, $1 D. decrease, $1 E. increase, $3

4. If the firm is producing 200 units of output, decreasing output by one unit would ______ the firm's profit by $______. A. increase, $2 B. decrease, $2 C. increase, $3 D. decrease, $5 E. increase, $5

5. In order to minimize losses in the short run, a perfectly competitive firm should shut down if? A. total revenue is less than total cost. B. total revenue is less than total fixed cost. C. total revenue is less than the difference between total fixed cost and total variable cost. D. total revenue is less than total variable cost.

6. When a perfect competitive industry is in long-run equilibrium, A. firms have incentives to enter or exit the industry. B. market price is equal to minimum long-run average cost. C. each firm earns a normal return. D. both b and c E. all of the above

7. The next 4 questions refer to the following figure:

If market price is $50, how much output will the firm produce? A. 0 units B. 100 units C. 300 units D. 400 units

8. If market price is $50, how much profit will the firm earn? A. $12,000 B. $15,000 C. $3,000 D. $6,000

9. If market price is $20, how much profit will the firm earn? A. zero B. -$3,000 C. $3,000 D. $300

10. At what level of output will the firm break even? A. 100 B. 200 C. 250 D. 350

Constant-cost Industry LONG-RUN SUPPLY FOR THE INDUSTRY Constant-cost Industry P P SS1 LAC D2 SS2 SMC D1 SAC P2 P2 LS P1 P1 E A B O O Qi1 Q1 Qi2 Q2 Q3 Q Q industry Typical firm

Increasing-cost industry SMC2 P P SS1 SS2 SAC2 LS D1 D2 P2 P2 B E2 SMC1 SAC1 E1 A P1 P1 O O Qi2 Qi1 Q1 Q2 Q Q Typical firm industry

decreasing-cost industry SMC1 P P SS1 D1 D2 SAC1 E1 P2 P2 SMC2 A SS2 SAC2 E2 P1 B P1 LS O O Qi1 Qi2 Q1 Q Q2 Q Typical firm industry