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June 27, 28.  The determination of prices and outputs of various products depends upon the type of market structure.  Meaning of Market is economics.

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Presentation on theme: "June 27, 28.  The determination of prices and outputs of various products depends upon the type of market structure.  Meaning of Market is economics."— Presentation transcript:

1 June 27, 28

2  The determination of prices and outputs of various products depends upon the type of market structure.  Meaning of Market is economics state a situation where buyer and seller is in contract with each other to transact commodities at an agreed price. It does not means any place.

3 Form of Market Structure Number of Firms Nature of Product Price Elasticity of Demand Degree of control over price Perfect competition A large number of firms Homogeneous Product InfiniteNone MonopolisticA large number of firms Differentiated product LargeSome Pure Oligopoly Few firmsHomogeneous product SmallSome MonopolyOneUnique product Very smallVery large

4  A producer or seller of a commodity is very much concerned with the demand of the consumer for the commodity. Because it manipulate a seller’s earning or revenue. From the stand point of seller, demand curve for a product is the average revenue cure.  Average revenue:- An average revue (AR) can be obtained by dividing the total revenue by the number of units sold. Thus AR = total revenue divided by the total output.

5  Marginal revenue (MR) is the net revenue earned by selling an additional unit of product. In other words, marginal revenue (MR) is the addition made to the total revenue by selling one more unit of a commodity.

6  When there prevails a perfect competition in the market for a product, demand curve facing an individual firm is perfectly elastic and the price is beyond the control of a firm, so average revenue curve remains constant. Quantity AR & MR AR = MR P 0

7  Numbers of units sold are 1, 2, 3,4, 5, 6,. Price of the good is Tk 16, so write down a table consist of AR and MR under perfect competition market condition ?

8  When imperfect competition prevails in the market for product, an individual firm producing that product face downward sloping demand curve. Which means when price falls then sale of addition units increase. Marginal revenue may be obtained by the difference between two successive total revenue decrease as well. Point is MR is less than AR.

9  How MR can be obtained from the changes in TR and what relation it bears with AR can be easily grasped from looking at the graph below:- AR and MR Quantity AR MR 0

10 No of units sold Total revenue (TR) Average revenue (AR) Marginal revenue (MR) 116 2301514 3421412 4521310 560128 666116 770104 87292

11  MR means the addition made to the total revenue by producing and selling an extra unit of output and MC means the additional made to the TC by producing an additional unit.  Now a firm will go on expanding its level of output until MC MR.  So the equilibrium position is, the level of output where MC=MR.

12  This equilibrium is in point E, where MC=MR. So equilibrium output level is OM.  Graph:- Output MR, MC MC (supply) MR ( demand) E M A B L C H D 0

13  For a firm to be equilibrium, MC curve must cut MR curve from below at the point of equilibrium, that will as follows:- MR MC 0Output E F


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